UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
BREDA TELEPHONE CORP.
(Name of Small Business Issuer in its Charter)
Iowa 42-0895882
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Highway 217 East, P.O. Box 190, Breda, Iowa 51436
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (712) 673-2311
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
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PART I
Item 1. Description of Business.
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General.
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Breda Telephone Corp. is an Iowa corporation with its principal offices in
Breda, Iowa. Breda was incorporated in 1964 to provide local telephone
services to Breda, Iowa and the surrounding rural area.
Breda's principal business is still providing telephone services. Telephone
services are also now provided by two of Breda's wholly owned subsidiaries,
Prairie Telephone Company, Inc. and Westside Independent Telephone Company.
A total of seven Iowa towns and their surrounding rural areas currently
receive telephone services from Breda, Prairie Telephone or Westside
Independent.
Prairie Telephone is an Iowa corporation that was incorporated in 1968.
Westside Independent is an Iowa corporation that was incorporated in 1957.
Breda acquired the stock of Westside Independent in June, 1998. Breda's
acquisition of Westside Independent is discussed below.
Another of Breda's wholly owned subsidiaries, Tele-Services, Ltd., provides
cable televison services to sixteen towns in Iowa and one town in Nebraska.
Tele-Services is an Iowa corporation. It was incorporated in 1983. Westside
Communications, Inc. is a wholly owned subsidiary of Tele-Services.
Westside Communications provides cable television services to two Iowa
towns. Tele-Services acquired the stock of Westside Communications in June,
1998. Tele-Services' acquisition of Westside Communications is discussed
below.
Breda's and its subsidiaries' telephone and cable television businesses are
discussed in more detail below. Some of the other miscellaneous business
operations of Breda and its subsidiaries are also briefly discussed below.
Telephone Services.
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Breda, Prairie Telephone and Westside Independent provide telephone
services to the following seven Iowa towns and their surrounding rural
areas:
o Breda, Iowa o Pacific Junction, Iowa
o Lidderdale, Iowa o Yale, Iowa
o Macedonia, Iowa o Westside, Iowa.
o Farragut, Iowa
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Breda provides services to Breda, Lidderdale and Macedonia. Prairie
Telephone provides services to Farragut, Pacific Junction and Yale.
Westside Independent provides services to Westside. The surrounding rural
areas that are served are those within approximately a ten mile to fifteen
mile radius of each of the towns.
All of the towns are in central and southern Iowa.
The primary services provided by Breda, Prairie Telephone and Westside
Independent are providing their subscribers with basic local telephone
service and access services for long distance or other calls outside the
local calling area. As of March 31, 1999, they were serving approximately
2,555 telephone numbers and related access lines. Breda, Prairie Telephone
and Westside Independent derive their principal revenues from providing
these services.
They also provide other telephone related services. For example, they sell
and lease telephone equipment to their subscribers, provide inside wiring
and other installation, maintenance and repair services to their
subscribers, and provide custom calling services to their subscribers. They
also derive revenues from providing billing and collection services for
some long distance carriers for the long distance calls made by their
subscribers.
Breda, Prairie Telephone and Westside Independent are all subject to
regulation by the Iowa Utilities Board. They operate their telephone
businesses pursuant to certificates and various rules and regulations
promulgated by the IUB. Although not anticipated to occur, the IUB could
terminate their right to provide services if they fail to comply with those
rules and regulations.
As indicated above, the IUB regulates or has the authority to regulate many
aspects of Breda's, Prairie Telephone's and Westside Independent's
telephone business. Some of the material areas of regulation include the
following:
o Breda, Prairie Telephone and Westside Independent are treated as
"service regulated" telephone companies by the IUB, which means
that they must comply with the IUB's rules and regulations
regarding the quality of services and facilities provided to
subscribers.
o The IUB must approve of any expansion in the telephone service
areas currently served by Breda, Prairie Telephone and Westside
Independent. Although they do not anticipate material
difficulties in the event of any proposed expansion, there is no
assurance that any future proposed expansion in the service areas
of Breda, Prairie Telephone or Westside Independent will be
approved.
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o The IUB has certified Breda, Prairie Telephone and Westside
Independent as "eligible carriers." This certification allows
them to receive universal services funding under a program
administered by the Federal Communications Commission. Breda,
Prairie Telephone and Westside Independent do not anticipate any
loss of that certification, but the loss of the certification
would result in them no longer receiving universal services
funding under the referenced FCC program. Although also not
anticipated to occur, they will also lose the right to receive
universal services funding if they do not provide the services
supported by the universal service fund. They received, in the
aggregate, approximately $81,552 in universal services funding in
1998. They estimate they will receive, in the aggregate,
approximately $78,720 in universal services funding in 1999.
o Breda, Prairie Telephone and Westside Independent are currently
treated as rural telephone companies under the Telecommunications
Act of 1996, which generally means that they are exempted from
some of the duties imposed on other telephone companies that make
it easier for potential competitors to compete. The IUB may
revoke this exemption, however, if it finds that a request by a
potential competitor for interconnection with Breda's, Prairie
Telephone's or Westside Independent's networks is not unduly
economically burdensome, is not technically unfeasible, and would
not affect the provisions of universal service.
Breda, Prairie Telephone and Westside Independent are also subject to
regulation by the Federal Communications Commission. Some of the material
areas of regulation by those authorities include the following:
o The FCC regulates the amount of access charges that can be
charged by Breda, Prairie Telephone and Westside Independent for
interstate long distance calls.
o The FCC must approve of any expansion in the telephone service
areas currently served by Breda, Prairie Telephone and Westside
Independent. Although they do not anticipate any material
difficulties in the event of any proposed expansion, there is no
guarantee that any future proposed expansion in the service areas
of Breda, Prairie Telephone or Westside Independent will be
approved.
o The FCC regulates the amount of universal services funding that
will be received by Breda, Prairie Telephone and Westside
Independent.
The regulation of access charges is an area of particular concern to Breda,
Prairie Telephone and Westside Independent because they derive a
substantial amount of their overall revenues from access charges. They
receive access charges from long distance
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carriers (sometimes referred to in the industry as "inter-exchange
carriers" or "IXCs") for providing intrastate and interstate exchange
services to those long distance carriers. In more basic terms, they receive
access charges for originating and terminating long distance calls made by
their subscribers. The amount of access charges that can be charged for
interstate long distance calls is determined by rates established by the
FCC. The FCC can change those rates at any time, and recent changes have
lowered access rates. Since access charges constitute a substantial portion
of Breda's, Prairie Telephone's and Westside Independent's total revenues,
this is an area of material risk to them.
Breda, Prairie Telephone and Westside Independent each have agreements with
Iowa Network Services. Under those agreements, Iowa Network Services
provides Breda, Prairie Telephone and Westside Independent with the lines
and services necessary for them to provide their subscribers with, among
other things, caller ID services and what is sometimes referred to in the
industry as "centralized equal access." As a practical matter, that access
is what allows their subscribers to choose long distance carriers, which
right is required to be given to subscribers by law. Breda's, Prairie
Telephone's and Westside Independent's telephone systems are tied into Iowa
Network Services' fiber optic network and switches. Although it is not
anticipated to occur, if their agreements with Iowa Network Services were
terminated, it would be difficult for them to find a replacement for Iowa
Network Services, and it would be costly for them to internalize all of
those services. Prairie Telephone and Westside Independent are each
shareholders of Iowa Network Services.
Telephone services providers like Breda, Prairie Telephone and Westside
Independent are subject to competition from other providers. As a result of
the Telecommunications Act of 1996, telephone companies are no longer
afforded exclusive franchise service areas. Under that Act, competitors can
now offer telephone services to Breda's, Prairie Telephone's and Westside
Independent's subscribers, and also request access to their lines and
network facilities. The Act contemplates that various regulations will be
promulgated to implement various parts of the Act, such as regulations
setting out the procedures and methods for implementing and promoting
competition in the telephone industry, and standards for wholesale pricing,
interconnection rates and for local network rates. Those regulations had
not been finalized at the time of this registration statement, and some
legal and court actions have been taken by other regulators and others in
the industry challenging some aspects of the proposed regulations and
procedures. Until those regulations are finalized, it is not possible to
predict how the Telecommunications Act of 1996 may affect Breda, Prairie
Telephone, Westside Independent and their telephone businesses. The
regulations could, however, have a material adverse effect, and the Act
does open up Breda, Prairie Telephone and Westside Independent to
competition that they were not subject to in the past.
Although competition is permitted, Breda, Prairie Telephone and Westside
Independent currently do not have direct competition in providing basic
local telephone service in their existing service areas. They do, however,
experience competition in providing access
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services and other services to long distance carriers. For example, they
experience competition in providing access services for long distance when
their subscribers use private line transport, switched voice and data
services, microwave, or cellular service. In those cases, the subscriber is
not using their networks or switches, so they cannot charge access charges
to the long distance carrier. They also experience competition in providing
billing and collection services to long distance carriers. The competition
is from third parties who provide similar services. The long distance
carriers are also starting to provide their own billing and collection
services, rather than contracting for those services with others like
Breda, Prairie Telephone and Westside Independent. Directory advertising is
also subject to competition because they can no longer require exclusive
listings in their phone books due to the adoption of the Telecommunications
Act of 1996.
Cable Services.
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Tele-Services owns and operates the cable television systems in the
following sixteen Iowa towns:
o Auburn o Grand Junction o Oakland
o Bayard o Hamburg o Riverton
o Breda o Lohrville o Sidney
o Churdan o Malvern o Tabor
o Farragut o Neola o Thurman
o Treynor
Tele-Services also owns and operates the cable television system for the
town of Beaverlake, Nebraska.
Westside Communications owns and operates the cable television system for
the towns of Westside, Iowa and Arcadia, Iowa.
As of March 31, 1999, Tele-Services and Westside Communications were
providing cable television services to approximately 3,592 subscribers.
Tele-Services and Westside Communications derive their principal revenues
from monthly fees charged to their cable subscribers for basic and premium
cable services provided to those subscribers.
They provide cable services to each of the towns pursuant to franchises or
agreements with each of those towns. Those various franchises or agreements
will expire by their terms in the following months:
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o Arcadia - June, 2009 o Lohrville - March, 2008
o Auburn - January, 2004 o Malvern - October, 2001
o Bayard - May, 2008 o Neola - September, 2002
o Beaverlake - December, 2008 o Oakland - July, 2001
o Breda - Year-to-Year Basis* o Riverton - February, 2013
o Churdan - June, 2008 o Sidney - February, 2005
o Farragut - January, 2009 o Tabor - September, 2001
o Grand Junction - May, 2008 o Thurman - February, 2013
o Hamburg - Year-to-Year Basis* o Treynor - October, 2022
o Westside - June, 2009
* These agreements are in the process of being renewed and are
currently continued on a year-to-year basis.
Tele-Services and Westside Communications do not anticipate that any of
their franchises or agreements will be terminated before the above normal
expiration dates. They also hope to be able to renew or extend their
franchises or agreements before they expire, but no assurance can be given
that any franchises or agreements can or will be renewed.
The termination of a franchise or agreement would allow that town to deny
Tele-Services or Westside Communications, as the case may be, access to its
cables for maintenance and services purposes. This would create
difficulties for them in properly serving their subscribers, and, in
general, providing cable services to that town.
The franchises or agreements with the towns require the giving of notice to
the towns before Tele-Services or Westside Communications can change their
cable services rates, and some of those franchises or agreements may
require the approval of the town for any increases in those rates. Although
Tele-Services and Westside Communications do not anticipate any material
difficulties with any future proposed rate increases, there can be no
guarantee that future proposed increases can be implemented in all of the
towns.
Although cable services providers like Tele-Services and Westside
Communications are subject to competition from other providers, they
currently do not have direct competition from other cable providers in the
towns they now service. There is, however, competition in other forms. For
example, they experience strong competition from wireless and satellite
dish providers. Various other competitors and forms of competition are also
likely to arise in the future as technological advances occur in the
telecommunications and cable industries.
Tele-Services and Westside Communications are regulated by the FCC. The
rules and regulations of the FCC primarily relate to general operational
and technical issues, and they do not affect rates or expansions of service
areas. As discussed above, Tele-Services' and Westside Communication's
cable services are also regulated in the sense that
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those services are provided pursuant to franchises or agreements with each
of the towns they now provide services in.
Miscellaneous Businesses.
Breda and some of its subsidiaries are also engaged in other miscellaneous
businesses.
For example, Breda, Prairie Telephone and Westside Independent also provide
internet access through their telephone lines to subscribers desiring that
access. They were providing internet access to approximately 365
subscribers as of March 31, 1999. Internet access is also provided by BTC,
Inc. in some areas which are outside of the telephone exchange areas
currently served by Breda, Prairie Telephone and Westside Independent. The
area served by BTC is currently limited to Carroll, Iowa and various
communities surrounding Carroll, Iowa. BTC provided internet access to
approximately 845 subscribers as of March 31, 1999. BTC is a wholly owned
subsidiary of Prairie Telephone. It is an Iowa corporation that was
incorporated in 1997.
BTC was organized primarily to explore the possibility of becoming a
competitive local exchange carrier in some Iowa communities which are not
served by Breda, Prairie Telephone or Westside Independent. No firm
decision has been made as to whether BTC will ever attempt to provide
telephone services in the state of Iowa, however, and BTC cannot provide
any telephone services in the state of Iowa without first filing
satisfactory tariff information with the IUB and the filing and giving of
various required notices.
Pacific Junction Telemarketing Center, Inc. is a wholly-owned subsidiary of
Prairie Telephone. Pacific Junction provides general telemarketing services
from its offices in Breda, Iowa. Although Pacific Junction can provide
telemarketing services to various customers, it currently receives
primarily all of its revenues from one customer. Pacific Junction is an
Iowa corporation that was incorporated in 1987. It had approximately
thirty-five full-time employees as of March 31, 1999. It currently has no
collective bargaining or labor agreements with any of its employees.
Revenues are also generated from sales of cellular phones and related
service packages and from investments in other entities providing cellular
phone services or which invest in other cellular phone ventures. For
example, investments have been made by Prairie Telephone in RSA #1, Ltd.
and RSA #7, Ltd., and by Breda in RSA #8, Ltd. and RSA #9, Ltd. Westside
Independent also has an investment in RSA #8, Ltd. All of those entities
are Iowa limited partnerships which provide cellular telephone services in
rural areas in central and south central Iowa. An investment has also been
made by Prairie Telephone in Central Iowa Cellular, Inc., which is an Iowa
corporation. Central Iowa Cellular, Inc. is an investor in the Des Moines,
Iowa metropolitan cellular telephone service area.
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Breda and its subsidiaries also have various other miscellaneous
investments. Those investments are described in the financial statements
included with this registration statement.
Employees.
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As of March 31, 1999, Breda had 22 full time employees. Breda employs all
of those employees, but those employees also provide the labor and services
for Prairie Telephone, Westside Independent, Tele-Services, BTC and
Westside Communications. The salaries and other costs and expenses of the
employees are allocated among Breda and its subsidiaries based on time
sheet allocations. There currently are not any collective bargaining or
other labor agreements with any of Breda's employees, and only two of
Breda's employees have written employment agreements. Those employment
agreements are with the manager and the co-manager of Breda.
Breda also utilizes part-time employees on an as needed basis.
Acquisitions.
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As indicated above, Breda acquired all of the issued and outstanding stock
of Westside Independent on June 1, 1998. Westside Independent was serving
approximately 342 telephone numbers and related access lines at that time.
The total purchase price paid by Breda was $2,010,038. Westside Independent
also redeemed some of its shares of outstanding stock as part of the
transaction. The aggregate redemption price paid by Westside Independent
for those shares was $918,875.17. The purchase price (excluding the
redemption amount paid by Westside Independent) exceeded the fair value of
the net assets of Westside Independent, as shown on Westside Independent's
financial statements, by $1,178,472. The excess was recorded as goodwill
and is being amortized on a straight line basis over a period of fifteen
years. As discussed above, Westside Independent provides telephone services
to subscribers in Westside, Iowa and its surrounding rural areas.
In a related transaction, Tele-Services acquired all of the issued and
outstanding stock of Westside Communications, Inc. on June 1, 1998.
Westside Communications, Inc. owned and operated the cable television
systems in Westside, Iowa, and Arcadia, Iowa. The number of subscribers for
cable television services in those towns at that time was approximately
297. The total cost of the acquisition was $254,289, which exceeded the
fair value of the net assets of Westside Communications, Inc., as shown on
its financial statements, by $157,611. The excess was recorded as goodwill
and is being amortized on a straight line basis over a period of fifteen
years.
On October 31, 1998, Tele-Services purchased the Auburn, Iowa cable
television system from NewPath Communications, L.C. The number of cable
subscribers in Auburn, Iowa
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at that time was approximately 91. The purchase price was $64,610.
Tele-Services also assumed the obligations and liabilities of NewPath
Communications, L.C. which were to arise after the closing:
o under its franchise with the city of Auburn and under certain
leases; and
o for the performance and delivery of services to subscribers to
the cable system.
Each of the above transactions was treated as a business combination
accounted for as a purchase.
Sale of Direct Broadcast Satellite Division.
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On January 11, 1999, Breda sold substantially all of its assets comprising
its direct broadcast satellite division. The purchase price received by
Breda was $8,274,689. The sale resulted in a pre-tax gain of $7,436,415,
which was included in Breda's operations during the first quarter of 1999.
The buyer also assumed:
o Breda's obligations to its direct broadcast satellite services
subscribers for refundable deposits and advance payments made by
those subscribers; and
o Breda's obligations otherwise arising after the closing date of
the sale under Breda's various licenses and contracts related to
its direct broadcast satellite business and assets.
Breda also executed a noncompetition agreement as part of the transaction.
Breda's direct broadcast satellite division included its licenses to
provide direct broadcast satellite services in five Iowa counties and four
counties in Nebraska. At the time of the sale, Breda was providing direct
broadcast satellite services to approximately 4048 subscribers.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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This item and other items in this registration statement may contain
certain forward looking statements that involve and are subject to various
risks, uncertainties and assumptions. Forward looking statements include,
but are not limited to, statements with respect to anticipated future
trends in revenues and net income, projections concerning operations and
cash flow, growth and acquisition opportunities, management's plans and
intentions for the future, and other similar forecasts and statements of
expectation. Words such as "expects," "estimates," "plans," "anticipates,"
"contemplates," "predicts," "intends," "believes," "seeks," "should" and
other similar expressions or variations thereof
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are intended to identify forward looking statements. Forward looking
statements made by Breda and its management are based on estimates,
projections, beliefs and assumptions made or existing at the time of such
statements and are not guarantees of future results or performance. Breda
disclaims any obligation to update or revise any forward looking statements
based on the occurrence of future events, the receipt of new information,
or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward looking statements as a result of a number of
risks, uncertainties and assumptions. The risks, uncertainties and
assumptions affecting forward looking statements include, but are not
limited to:
o the possible adverse effects to Breda and its subsidiaries which
may arise under the regulations which will be promulgated under
the Telecommunications Act of 1996, including increased
competition;
o adverse changes by the FCC in the rates of the access charges
that can be charged by Breda and its subsidiaries to long
distance carriers;
o technological advances in the telecommunications and cable
industries which may replace or otherwise adversely affect in a
material way the existing technologies utilized by Breda and its
subsidiaries;
o potential adverse effects resulting from Year 2000 compliance
issues;
o general industry and economic conditions;
o changes in or further governmental regulations and policies; and
o continued availability of financing.
The discussions of Breda's financial condition and results of operations
should also be read in conjunction with the financial statements and
related notes included in Part F/S of this registration statement.
Overview.
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Breda's primary source of revenues on a consolidated basis with its
subsidiaries is from the telephone services provided by Breda, Prairie
Telephone and Westside Independent. The operating revenues from their
telephone services are primarily derived from the following types of fees
and charges:
o Flat monthly fees charged to subscribers for basic local
telephone services.
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As of April, 1999, those fees varied from approximately $11.50 to
$35.00 per month. The monthly fee is higher for subscribers who
elect to have additional services and features, such as custom
features.
o Access charges payable by long distance carriers for intrastate
and interstate exchange services provided to those long distance
carriers. Access charges may be at a flat, fixed rate or may
depend upon usage. As discussed above in Item 1 of this
registration statement, access rates are subject to regulation by
the FCC. Recent changes in those regulations have led to a
reduction in access rates. Access revenues have still been
increasing in recent years, but Breda believes that increase is
attributable to increased numbers of subscribers, increased
calling patterns and technological advances. Access charges
constitute a substantial part of Breda's, Prairie Telephone's and
Westside Independent's revenues, and a material risk to them
arises from the regulation of access charges rates by the FCC.
o Revenue from the sale and lease of customer premises telephone
equipment and other similar items and other miscellaneous
customer services, such as custom calling services.
o Fees from long distance providers for billing and collecting
services for long distance calls made by subscribers. Breda,
Prairie Telephone and Westside Independent are experiencing
increased competition in this area. As discussed in Item 1 above,
their competitors include other third parties providing these
services, and competition from the long distance providers
themselves since some providers have determined to handle their
own billing and collection.
Breda, Prairie Telephone, Westside Independent and BTC each generate
revenues from providing internet access and from sales and leases of other
equipment and facilities for private line data transmission, such as local
area networks, virtual private networks and wide area networks.
Breda's other primary source of revenue on a consolidated basis with its
subsidiaries is generated from Tele-Services' and Westside Communication's
cable television businesses. Their operating revenues arise primarily from
monthly fees for basic and premium cable services provided to their cable
subscribers.
Other revenues arise from the telemarketing activities of Pacific Junction
and investments in various cellular limited partnerships and cellular
corporations. Those sources of revenue are briefly discussed above in Item
1 of this registration statement. Other miscellaneous sources of revenue
are also discussed in the financial statements found at Part F/S of this
registration statement.
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The following table reflects, on a consolidated basis for Breda and its
subsidiaries, the percentage of revenue derived from Breda's and its
subsidiaries' various businesses and investments as of the close of the
past three years:
1998 1997 1996
---- ---- ----
Local Network(1) 12.2% 11.3% 12.3%
Network Access(2) 75.8% 75.2% 81.5%
Billing and Collection(3) 3.1% 5.4% 4.5%
Cable and Other Non-
regulated Revenues,
Net of Expenses(4) 7.9% 7.1% .9%
Miscellaneous(5) 1.0% 1.0% .8%
---- ---- ----
Total 100% 100% 100%
(1) Includes flat monthly fees charged to subscribers by Breda,
Prairie Telephone and Westside Independent for basic local
telephone services.
(2) Includes access charges payable by long distance carriers for
intrastate and interstate exchange services provided to those
long distance carriers.
(3) Includes fees from long distance providers for billing and
collection services for long distance calls made by subscribers.
(4) Includes monthly fees charged for basic and premium cable
services, internet access and cellular services.
(5) Includes advertising fees.
Year ended December 31, 1998 compared to year ended December 31, 1997.
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Breda's financial statements and information are prepared and presented on
a consolidated basis, and include Breda; Westside Independent;
Tele-Services; Prairie Telephone; Prairie Telephone's two wholly-owned
subsidiaries, Pacific Junction and BTC; and Tele-Services' wholly owned
subsidiary, Westside Communications.
Breda's operating revenues, on a consolidated basis with its subsidiaries,
was $2,998,767 for the 1998 fiscal year, which surpassed Breda's operating
revenues for the 1997 fiscal year by $150,527, or 5.3%. Revenue from local
network services increased in 1998 by $51,744, or 14.9%, due mainly to an
increase in telephone subscribers through the acquisition of Westside
Independent in June of 1998. Revenue from access charges increased in 1998
by $161,051, or 7.1%, due to continued growth of interstate and intrastate
access minutes of use and additional telephone subscribers acquired through
the acquisition of Westside Independent in June of 1998. Revenues from
billing and collection services decreased in 1998 by $63,027, or 38.5%. The
decrease arose primarily from certain long distance carriers taking back
the billing and collection function and from the fact that revenues from
billing and collection services in 1997 included a one time fee
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of $49,500. Revenues from Tele-Services and Westside Communications cable
operations and other nonregulated revenues increased in 1998 by $38,746, or
17.8%.
Operating expenses increased in 1998 by $281,225, or 16.8%. Plant
operations and expenses increased in 1998 by $137,653, or 81.0%. This
increase was attributable primarily to higher maintenance expenses,
additional payroll and benefits, and the increased use of consultants
(mainly engineers) providing facility expertise. Depreciation increased in
1998 by $22,381, or 5.6%, due to increases in property, plant and
equipment. Amortization increased in 1998 by $45,848, or 155.1%, due to the
recording of goodwill associated with the acquisitions during 1998 and the
related write-offs. General and administrative expenses increased in 1998
by $217,765, or 42.2%, due primarily to increased use of attorneys and
consultants in negotiating and completing the acquisitions that occurred
during 1998 and the disposition of Breda's direct broadcast satellite
division in January of 1999. Additional employees were hired in 1998 in an
attempt to enhance the internal management group, which also added to the
increase in general and administrative expenses.
Other income increased in 1998 by $38,746, or 7.8%. Included in this amount
was an increase in interest income of $90,862, or 101.1%. Interest expense
also increased in 1998, however, by $113,330, or 40.1%, due to the
refinancing of all of Breda's and some of its subsidiaries' debt as well as
the incurrence of an additional outstanding debt at December 31, 1998. The
latter debt was assumed in order to facilitate the acquisitions completed
in 1998.
Over all, operating income decreased in 1998 by $130,698, or 11.1%, and
total earnings decreased by 18.5%. Total operating and non-operating income
taxes deceased $68,672, or 10.1%, in 1998. This decease is due to the
increase in operating expenses and the overall decrease in net income.
First Quarter of 1999 Compared to First Quarter of 1998.
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There was a decrease in total operating revenues in the first quarter of
1999, as compared to the first quarter of 1998, in the amount of $59,445,
or 7.8%. The decrease was due primarily to a decline in access revenues as
a result of a change in the rules of the FCC. The decrease was partially
offset, however, by an increase in local service revenues of $15,872, or
16.1%. This increase was due mainly to an increase in the number of
telephone subscribers because of the acquisition of Westside Independent in
June of 1998.
There was an increase in total operating expenses in the first quarter of
1999, as compared to the first quarter of 1998, of $77,814, or 17.1%. The
increased expenses were due primarily to the acquisition and sale
activities in 1998 and the first quarter of 1999. The acquisitions brought
increases in maintenance and depreciation costs, as well as amortization
expenses resulting from goodwill write-offs. General administrative
13
<PAGE>
expenses increased in the first quarter of 1999, as compared to the first
quarter of 1998, by $58,081, or 33.8%. This increase was due primarily to
the increased use of attorneys and other consultants in connection with the
acquisitions and sales in 1998 and 1999, and to the additional employees
hired in 1998 to enhance the internal management group.
Other income and expenses increased by $4,595,889 in the first quarter of
1999. The most significant part of this increase was the gain on the sale
of Breda's direct broadcast satellite division of $7,436,415, before taxes.
Other increases included interest income of $82,005, and increased revenue
from cable and other non-regulated revenues of $59,980.
Interest expense increased in the first quarter of 1999 over the comparable
period in 1998 by $36,416, or 51.7%. The increase was due primarily to the
increase in outstanding debt incurred in connection with the 1998
acquisitions.
Overall, operating income decreased in the first quarter of 1999 by
$137,259, or 45%, while net income increased $4,422,214. The increase in
net income is mostly attributable to the gain on the sale of Breda's direct
broadcast satellite division.
Liquidity and Capital Resources.
--------------------------------
Breda's net working capital was a negative $425,522 as of the close of
December, 1998. This represents a decrease of $448,561 in net working
capital from year-end 1997. The negative net working capital at year-end
1998 was due primarily to timing on the movement of cash. A $750,000 line
of credit advance was taken from the Rural Telephone Finance Cooperative in
December of 1998, and paid back on January 12, 1999.
Other contributing factors in the net worth change between 1998 and 1997
included increased current debt payments brought about by borrowing funds
from the Rural Telephone Finance Cooperative for the purchase of Westside
Independent and Westside Communications, Inc. in June of 1998.
A final, balloon payment of $79,382 is due in October of 1999 under the
real estate contract entered into by Tele-Services for the building
utilized by Breda and Prairie Telephone as their office and headquarters.
The sale of Breda's direct broadcast satellite division in January of 1999
generated $8,200,000, before taxes.
14
<PAGE>
Breda and its subsidiaries operate in capital-intensive industries. Their
primary source of working capital continues to be revenues from operating
activities. The sale of Breda's direct broadcast satellite division in
January of 1999, however, also provided a significant source of working
capital and funding for potential future expansions.
Breda and its subsidiaries have and will continue to incur capital
expenditures in connection with their two-year project of upgrading their
telephone equipment for Year 2000 compliance and related FCC requirements.
Breda estimates that this project will cost over $2,000,000 when completed.
Plans are also underway to upgrade Breda's and its subsidiaries' computer
systems to address potential Year 2000 issues. Breda estimates that the
costs of these upgrades could run as high as $250,000. Based on current
information, however, Breda does not anticipate that Year 2000 issues will
have a material adverse effect on Breda, its subsidiaries or their
consolidated financial position, results of operations or cash flows
because it believes that its and its subsidiaries' equipment, software and
other internal computer systems, and those of the third parties with which
they have material dealings, will achieve Year 2000 compliance before Year
2000 issues will begin to potentially have an adverse effect. There can be
no assurance, however, that Breda's or its subsidiaries' Year 2000
remediation efforts, or those of any third parties with which they may
deal, will be properly and timely completed. The failure to do so could
have a material adverse effect on Breda and its subsidiaries.
Breda's primary capital investment activity will currently continue to be
additions to property, plant and equipment. For example, Breda continues to
make investments in state-of-the-art technology in order to try to offer
subscribers the best possible service. Capital expenditures for 1999 are
expected to be over $1,061,000.
Breda believes that the funds from the sale of its direct broadcast
satellite division, along with its anticipated normal operating revenues,
will generate sufficient working capital for Breda and its subsidiaries to
meet their current operating needs and maintain historical fixed asset
addition levels.
Breda also plans to continue to consider and pursue future opportunities
which it believes will diversify and strengthen its consolidated
operations. For example, Breda is presently evaluating the acquisition of
additional telephone lines as they become available by the industry
repositioning of companies such as GTE and US West. As another example, in
1998 Breda purchased one unit in Telephone Acquisition Group, L.L.C.
Telephone Acquisition Group, L.L.C. was formed by several independent
telephone companies in order to bid on GTE properties. Breda also has an
interest in Alpine Communications, L.C., which was also formed by several
independent telephone companies. Alpine Communications, L.C. has purchased
former U.S. West telephone properties in Iowa. Breda also plans to continue
to consider and pursue investments in other entities that may advance its
goal of diversifying and strengthening its consolidated operations. Some of
15
<PAGE>
Breda's other existing investments are discussed in the notes to the
financial statements included at Part F/S of this registration statement.
Item 3. Description of Property.
------------------------
Breda and some of its subsidiaries own or lease various real estate. The
following paragraphs briefly describe that real estate and how the real
estate is currently used.
Breda owns or leases the following real estate:
o Breda's corporate offices are located at Highway 217 East, Breda,
Iowa. The real estate and building are leased by Breda and
Prairie Telephone from Tele-Services. The aggregate monthly
rental payable by both Breda and Prairie Telephone under the
lease is $1,000. They also pay utilities and insurance. The lease
has a one year term, and automatically renews for additional one
year terms. The building has approximately 4,560 square feet.
Breda and Prairie Telephone utilize the entire building.
o Breda owns certain real estate and a warehouse which is also
located at Highway 217 East, Breda, Iowa. The warehouse has
approximately 6,720 square feet, and is used primarily for
storage of inventory and various equipment (trucks, generators,
trailers, plows, etc.).
o Breda owns certain real estate and a building located just east
of Breda, Iowa. The building houses equipment used to switch,
record and transmit telephone calls. This type of equipment is
sometimes referred to in the industry as "central office
equipment." The equipment is used in providing telephone services
to Breda and the surrounding rural area. The building has
approximately 960 square feet.
o Breda owns the real estate and building located at 109 West
Second Street, Lidderdale, Iowa. The building houses equipment
used to switch, record and transmit telephone calls. The
equipment is used in providing telephone services to Lidderdale
and the surrounding rural area. The building has approximately
600 square feet.
o Breda owns the real estate and building located at 310 Main
Street, Macedonia, Iowa. The building houses equipment used to
switch, record and transmit telephone calls. The equipment is
used in providing telephone services to Macedonia and the
surrounding rural area. The building has approximately 600 square
feet.
Prairie Telephone owns or leases the following real estate:
16
<PAGE>
o Prairie Telephone's corporate offices are located at Highway 217
East, Breda, Iowa. The real estate and building are leased by
Prairie Telephone and Breda from Tele-Services, as described
above.
o Prairie Telephone owns the real estate and building located at
508 Dupont Street, Farragut, Iowa. The building houses equipment
used to switch, record and transmit telephone calls. The
equipment is used in providing telephone services to Farragut and
the surrounding rural area. The building has approximately 2,400
square feet.
o Prairie Telephone owns a warehouse which is also located at 508
Dupont Street, Farragut, Iowa. The warehouse has approximately
2,600 square feet, and is used for storage of inventory and
equipment (trucks, generators, trailers, plans, etc.).
o Prairie Telephone owns the real estate and building located at
707 Phillips Street, Farragut, Iowa. The building was formerly
used to house equipment used in providing telephone services, but
is currently vacant.
o Prairie Telephone owns the real estate and building located at
804 Washington Avenue, Pacific Junction, Iowa. The building
houses equipment used to switch, record and transmit telephone
calls. The equipment is used in providing telephone services to
Pacific Junction and the surrounding rural area. The building has
approximately 2,000 square feet.
o Prairie Telephone owns the real estate and building located at
600 Washington Street, Pacific Junction, Iowa. The building was
formerly used to house equipment used in providing telephone
services, but is currently vacant.
o Prairie Telephone owns the real estate and building located at
226 Main, Yale, Iowa. The building houses equipment used to
switch, record and transmit telephone calls. The equipment is
used in providing telephone services to Yale and the surrounding
rural area. The building has approximately 1,125 square feet.
Pacific Junction's (Prairie Telephone's wholly-owned subsidiary) offices
are located at 120 Main, Breda, Iowa. The real estate and building are
leased by Pacific Junction. The aggregate monthly rental payable by Pacific
Junction under the lease is $500. Pacific Junction also pays real estate
taxes, utilities and all other expenses. The term of the lease runs until
March 31, 2001. The building has approximately 1,679 square feet. Pacific
Junction utilizes all of the building.
17
<PAGE>
BTC owns the real estate and building located at 526 N. Carroll Street,
Carroll, Iowa. The building houses some equipment used by BTC in providing
Internet services, but was acquired and is being held primarily for
potential future use by BTC if and when BTC provides any telephone
services. The building has approximately 1,804 square feet.
Westside Independent owns the real estate and building located at 131 South
Main Street, Westside, Iowa. The building is used for Westside's corporate
offices, and also houses equipment used to switch, record and transmit
telephone calls. The equipment is used in providing telephone services to
Westside and the surrounding rural area. The building also houses some
equipment used by Tele-Services in its cable business. The building has
approximately 1,600 square feet.
Tele-Services owns the following real estate:
o Tele-Services owns certain real estate and a building located at
Highway 217 East, Breda, Iowa. This property serves as the
corporate offices of Breda and Prairie Telephone, and is leased
to them by Tele-Services. The lease is briefly described above in
the description of Breda's properties. The real estate is being
purchased by Tele-Services under a real estate contract dated
November 18, 1994. The aggregate purchase price payable under the
real estate contract is $150,000, and the remaining balance of
the purchase price ($79,382) is payable by Tele-Services on
October 1, 1999. Upon that payment, Tele- Services is to receive
a warranty deed from the sellers.
o Tele-Services also owns buildings located in sixteen different
towns which house some equipment used to receive, descramble and
transmit television signals. This type of equipment is sometimes
referred to in the industry as "head-end equipment." The
buildings each have approximately 150 square feet. The buildings
are located on real estate in each of the sixteen towns, which is
generally made available to Tele-Services under its franchise
agreement with those towns. Some of the real estate is owned by
the towns. Tele-Services pays a very nominal consideration for
the use of the real estate, and in some cases is not required to
pay any consideration. Tele-Services' use of some of the real
estate is pursuant to an oral agreement. Tele-Services does not
believe it will be difficult or cost prohibitive to obtain other
real estate for the buildings or the equipment, if that became
necessary for some reason.
Westside Communications owns buildings located in the two towns in which it
provides cable services. Those buildings house head-end equipment. The
buildings each have approximately 150 square feet. The buildings are
located on real estate in each of those towns, which is made available to
Westside Communications under its franchise agreement with those towns.
Westside Communications pays a very nominal
18
<PAGE>
consideration for the use of the real estate. Westside Communications does
not believe it will be difficult or cost prohibitive to obtain other real
estate for the buildings or the equipment, if that became necessary for
some reason.
All of the real estate and substantially all of the other assets of Breda,
Prairie Telephone and Tele-Services are subject to mortgages and security
agreements given by those corporations to the Rural Telephone Finance
Cooperative to stand as security and collateral for the loans made by the
Rural Telephone Finance Cooperative to Breda, Prairie Telephone and
Tele-Services. The loans are also each evidenced by a loan agreement and a
secured promissory note. The loan agreements establish lines of credit in
the amounts of $2,421,053 and $2,361,153 for Breda, and a line of credit of
$1,444,545 for Prairie Telephone, and of $2,040,000 for Tele-Services.
Tele-Services cannot, however, request any further advances under its loan
agreement, and the aggregate principal amount outstanding under
Tele-Services' loan agreement and secured promissory note as of March 31,
1999 was $1,128,946.
The loan agreement given by both Breda and Prairie Telephone was given for
the purpose of repaying their existing lines of credit with the Rural
Telephone Finance Cooperative and consolidating their other outstanding
loans, and the aggregate amount outstanding under that loan agreement as of
March 31, 1999 was $2,288,384 for Breda, and $1,400,025 for Prairie
Telephone.
Breda's other loan agreement allowed it to borrow funds for purposes of the
purchase of Westside Independent by Breda and the purchase of Westside
Communications, Inc. by Tele-Services. The aggregate amount outstanding
under that loan agreement as of March 31, 1999 was $2,346,438.
Breda's mortgages and security agreements also secure a 1993 loan from the
Rural Telephone Finance Cooperative in the aggregate principal amount of
$722,252. The loan was granted for Breda to finance the purchase of its
former direct broadcast satellite division. The aggregate amount
outstanding under that loan as of March 31, 1999 was $427,283.
Prairie Telephone and Breda also have lines of credit available from the
Rural Telephone Finance Cooperative in the amounts of, respectively,
$250,000 and $750,000. Those lines of credit are subject to renewal on an
annual basis, and will currently expire in January of 2000. The lines of
credit are also secured by the mortgages and security interests discussed
above.
The Rural Telephone Finance Cooperative required Westside Independent to
execute a guaranty of the loan made by the Rural Telephone Finance
Cooperative to Breda to finance the purchase of Westside Independent by
Breda and the purchase of Westside
19
<PAGE>
Communications, Inc. by Tele-Services. Westside Independent's guaranty is
secured by a mortgage and security agreement which covers its real estate
and substantially all of its other assets. Westside Communications also
executed that guaranty and the mortgage and security agreement, so its real
estate and assets also secure the loan.
Breda believes that its real estate, buildings and other improvements and
the real estate, buildings and other improvements of its subsidiaries are
adequate to conduct their business as conducted or proposed to be conducted
on the effective date of this registration statement. Breda also believes
that its' and its subsidiaries' buildings and improvements have been
maintained in good repair and condition, ordinary wear and tear and
depreciation excepted.
Breda, Prairie Telephone and Westside Independent also each own various
equipment used to switch, record and transmit telephone calls in the areas
serviced by them. BTC also owns certain equipment. This equipment is all
housed in buildings owned or leased by them, as discussed above. Breda
believes that the normal and ordinary useful life of this type of equipment
is approximately 5-12 years. The current equipment was purchased at various
times over the period of 1986 to 1998. Breda believes the equipment is now
in good operating condition and repair, considering ordinary wear and tear
and depreciation. Breda, Prairie Telephone, Westside Independent and BTC
also own miscellaneous lines, cables and other equipment used to provide
telephone and internet services.
Tele-Services and Westside Communications own various equipment used to
receive, descramble and transmit cable signals, including various
electronic receiving equipment and electronic conductors and devices. The
equipment is sometimes called "head end" equipment. The equipment is
located in various towns as discussed above. Tele-Services and Westside
Communications also own other miscellaneous cables and equipment used in
their business.
Breda, Prairie Telephone, Westside Independent, Tele-Services and Westside
Communications also hold various easements for their various telephone and
cable lines and other property. Some of those easements are on or across
real estate of the cities or other governmental authorities whose areas are
being served, and others are on or across private property.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
Breda is only authorized to issue common stock.
The following table sets forth some information on the percentage ownership
of Breda's common stock as of March 31, 1999 by:
20
<PAGE>
o each person known by Breda to be the beneficial owner of more
than 5% of Breda's common stock;
o each of Breda's directors;
o each of Breda's officers;
o the person employed by Breda as its manager; and
o all directors and officers of Breda and the manager of Breda as a
group.
Security Ownership Table
Name and Address of
Beneficial Owner Number of Shares Percentage Ownership
---------------- ---------------- --------------------
Dean Schettler 30 .08%
16326 120th St
Breda, Iowa 51436
Clifford Neumayer 197* .52%
11846 Ivy Avenue
Breda, Iowa 51436
Larry Daniel 2 .005%
15731 Robin Avenue
Glidden, Iowa 51433
Dave Hundling 108 .29%
12245 Birch Avenue
Breda, Iowa 51436
John Wenck 6 .02%
23909 140th St
Carroll, Iowa 51401
Scott Bailey 20 .05%
12424 120th Street
Breda, Iowa 51436
Dave Grabner 54 .14%
11098 130th Street
Breda, Iowa 51436
21
<PAGE>
Robert Boeckman 30 .08%
23678 150th Street
Carroll, Iowa 51401
All directors and officers 447 1.18%
and the manager as a group
(8 persons)
* One of these shares is held by Kevin Neumayer, and fifteen of
these shares are held by Neumayer Farms. Kevin Neumayer is Mr.
Neumayer's son and Neumayer Farms is an Iowa partnership in which
Mr. Neumayer is one of the partners. Those shares are included
because they may be deemed to be beneficially owned by Mr.
Neumayer for reporting purposes under this Item.
To Breda's knowledge, no person is the beneficial owner of more than 5% of
Breda's common stock.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
-------------------------------------------------------------
The directors and executive officers of Breda are as follows:
Name Age Position(s)
---- --- -----------
Dean Schettler 47 President and
Director
Clifford Neumayer 50 Vice-President and
Director
Larry Daniel 57 Secretary and
Director
Scott Bailey 36 Director and
Treasurer
Dave Hundling 51 Director
John Wenck 60 Director
Dave Grabner 50 Director
Dean Schettler has been the President and a director of Breda since April,
1997. His current term as a director will end in April, 2000. He has also
held each of those positions with each of Breda's subsidiaries since April,
1997. Mr. Schettler has been
22
<PAGE>
employed by Pella Corporation, Pella, Iowa, since August, 1986. He was a
moulder technician until August, 1997. Since that time he has been a
production coordinator. Pella Corporation is a window and door
manufacturer.
Clifford Neumayer has been the Vice-President and a director of Breda since
April, 1996. His current term as a director of Breda will end in April,
2002. He has also held each of those positions with each of Breda's
subsidiaries since April, 1996. Mr. Neumayer has been self employed as a
farmer since 1970.
Larry Daniel has been the Secretary and a director of Breda since April,
1995. His current term as a director of Breda will end in April, 2001. He
has also held each of those positions with each of Breda's subsidiaries
since April, 1995. Mr. Daniel is a self employed farmer, and has been for
at least the last five years.
Scott Bailey has been a director of Breda since April, 1998. His current
term as a director of Breda will end in April, 2001. He has also served as
a director of each of Breda's subsidiaries since April, 1998. He has been
Breda's treasurer, and the treasurer of Breda's subsidiaries since April,
1999. Mr. Bailey was the finance manager of marketing and sales for Pella
Corporation, Pella, Iowa, from August, 1993, to September, 1995. He has
been a controller for Pella Corporation since September, 1995 to the
present. Pella Corporation is a window and door manufacturer.
Dave Hundling has been a director of Breda since April, 1997. His current
term as a director of Breda will end in April, 2000. He has also served as
a director of each of Breda's subsidiaries since April, 1997. Mr. Hundling
is also a self employed farmer, and has been for at least the last five
years.
John Wenck has been a director of Breda since April, 1997. His current term
as a director of Breda will end in April, 2000. He has also served as a
director of each of Breda's subsidiaries since April, 1997. Mr. Wenck is
currently self employed as a farmer. He was also previously employed by the
United Parcel Service as a delivery driver.
Dave Grabner has been a director of Breda since April, 1999. His current
term as a director of Breda will end in April, 2002. He has also served as
a director of each of Breda's subsidiaries since April, 1999. Mr. Grabner
is currently self employed as an electrician, and has been for at least the
last five years. He was also previously self-employed as a farmer.
The number of directors for Breda will currently be between five and nine
directors, with the exact number to be determined by the board of
directors. Each of Breda's directors is elected to a three year term and
until his or her successor is elected. The terms of the directors of Breda
are staggered, so that approximately one-third of the directors are
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<PAGE>
elected each year. Each director of Breda must also be a shareholder of
Breda, and a director shall automatically cease to be a director if he or
she sells or transfers all of his or her common stock in Breda.
The officers of Breda are appointed annually by the board of directors at
its annual meeting, and hold office until the next annual meeting of the
board of directors and until their successor is chosen. Officers may also
be removed by the board of directors at any time, with or without cause.
Each officer must also be a director of Breda.
Breda believes that two of its employees are and will continue to make a
significant contribution to its business. Those employees are as follows:
Name Age Position
---- --- --------
Robert J. Boeckman 38 Manager
Jane A. Morlok 45 Co-Manager
Both Mr. Boeckman and Ms. Morlok are employed pursuant to employment
agreements with Breda. Those employment agreements are discussed in Item 6
below.
Mr. Boeckman has been employed by Breda in various capacities since May,
1982. Prior to January, 1995, he was Breda's assistant manager. He has been
the manager since January, 1995, and he was also given the title of chief
operating officer in March, 1998.
Ms. Morlok has been the co-manager of Breda since March 30, 1998. Ms.
Morlok was the assistant administrator/CFO of Manning Regional Healthcare
Center in Manning, Iowa from July of 1987 until March 20, 1998. Her
responsibilities in that position included budgeting, reimbursement and
rate setting for the hospital and nursing home run by the Manning Regional
Healthcare Center, as well as daily general ledger operations and IRS
filings. She also provided similar services to several other affiliated
corporations.
Item 6. Executive Compensation.
-----------------------
Summary Compensation Table.
---------------------------
The following summary compensation table shows the compensation paid by
Breda to its manager in the 1996, 1997 and 1998 fiscal years:
24
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Other Annual All Other
Position Year Salary(1) Bonus Compensation(2) Compensation(3)
-------- ---- --------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert J. Boeckman, 1996 $64,701 $ 2,000 $ 1,894 $12,631
Manager 1997 $67,142 $ 2,000 $ 3,015 $13,157
1998 $70,700 $ 2,000 $ 4,737 $13,951
</TABLE>
(1) This amount includes a contribution by Mr. Boeckman of 3% of his
annual gross salary pursuant to Breda's defined benefit
retirement and security program, which is sponsored by the
National Telephone Cooperative Association. As a condition of
participation in that program, Mr. Boeckman must contribute a
minimum of 3% of his annual gross salary. See also the "All Other
Compensation" column above.
(2) This amount includes payments to Mr. Boeckman by Breda from a
fund established by Breda based upon sales of cell phones. The
fund is allocated equally among the employees employed at Breda's
and Westside Independent's offices. All employees share in the
fund even if they are not involved in the sale of cell phones.
Mr. Boeckman is not involved in those sales. The amount also
includes a yearly clothing allowance and the estimated yearly
value of services provided to Mr. Boeckman by Breda or its
subsidiaries at no cost. Those services are local telephone
service, basic cable services, internet service, and cellular
phone services.
(3) This amount represents contributions by Breda on behalf of Mr.
Boeckman to Breda's defined benefit retirement and security
program, which is sponsored by the National Telephone Cooperative
Association. The program requires Breda to contribute an amount
equal to 8.6% of Mr. Boeckman's annual gross salary. See also
footnote 1 above regarding Mr. Boeckman's contributions to the
program. This amount also includes a long term disability
contribution of 1.02% of salary and employer-paid premiums on
health, life and accidental death and dismemberment insurance.
Dean Schettler is the president of Breda. No information is provided for
Mr. Schettler in the summary compensation table because he does not receive
compensation in his capacity as the president of Breda. Mr. Schettler does
receive compensation for his services as a director of Breda. The
compensation payable to directors is discussed below.
No officer's or employee's total annual salary, bonus and other annual
compensation exceeded $100,000 during any of the 1996, 1997 or 1998 fiscal
years.
Director Compensation.
----------------------
All of Breda's directors currently receive $100 for each regular, special
and conference call meeting of the board of directors. The vice-president,
secretary and treasurer of Breda also currently receive an additional $25
for each regular, special and conference call meeting of the board of
directors, and the president of Breda receives an additional $50 per
meeting. Those payments are made to those individuals in their capacities
as
25
<PAGE>
directors, and are based upon their additional duties at the meetings of
the board of directors. Breda's directors received the same amounts in
1998, except that the vice-president of Breda did not receive an additional
$25 per meeting in 1998.
All of Breda's directors currently receive $125 per day for all day
meetings of the board of directors, and for each outside meeting of the
board of directors lasting over three hours. The directors receive one-half
of their regular meeting rate for each outside meeting of the board of
directors which lasts less than three hours. The directors received $125
per day for all day meetings of the board of directors in 1998. Examples of
outside meetings include conventions and city council meetings.
Breda's directors are also reimbursed for mileage and for any expenses paid
by them on account of attendance at any meeting of the board of directors
or other meetings attended by them in their capacity as a director of
Breda.
Directors may also receive internet services from Breda or its subsidiaries
at no cost. The current estimated yearly value of internet services is
$315. They were also entitled to receive internet services in 1998.
Employment Agreements.
----------------------
Breda has entered into employment agreements with Robert Boeckman, Breda's
manager, and with Jane Morlok, Breda's co-manager.
Mr. Boeckman. Mr. Boeckman is responsible for the day-to-day operations of
Breda under his employment agreement. The term of the employment agreement
will currently end on December 31, 2001. The employment agreement will
automatically extend for successive one year periods, however, unless Breda
or Mr. Boeckman provides the other with written notice prior to April 1 in
any year of their desire to terminate the employment agreement at the end
of that year. Breda may also terminate the employment agreement for any
reason, including a breach or default by Mr. Boeckman, by giving Mr.
Boeckman at least ninety days notice of his last day of employment with
Breda.
Mr. Boeckman's salary is increased under the employment agreement effective
January 1 of each year to an amount equal to the previous year's salary,
plus 3 1/2% of the previous year's salary, and the additional amount
determined by multiplying the previous year's salary by the percentage
increase as shown in the U.S. Department of Labor cost of living index for
the previous year. In other words, Mr. Boeckman's yearly salary is
increased by 3 1/2% percent plus a cost of living increase based on any
increase in the U.S. Department of Labor's cost of living index.
26
<PAGE>
If Mr. Boeckman becomes totally disabled, he will continue to receive his
then current salary until benefits under Breda's disability program become
payable to him.
If he dies while employed, Mr. Boeckman's estate or other designated
beneficiary will receive his salary up to the date of death, and an
additional six months of salary at the rate at the time of death and the
salary equivalent of all accrued unused vacation time at the date of death.
If Breda terminates Mr. Boeckman's employment without cause, Mr. Boeckman
will receive a payment from Breda of an amount equal to the remaining
salary that would have been paid to him up to the then expiration date of
the employment agreement.
Mr. Boeckman may terminate his employment with Breda if there is a change
in the majority ownership of Breda. In that event, Mr. Boeckman will be
entitled to receive a payment from Breda of an amount equal to the
remaining salary that would have been paid to him up to the then expiration
date of the employment agreement.
Mr. Boeckman is also reimbursed by Breda under the employment agreement for
all necessary and reasonable expenses incurred by him in performing
services for Breda.
Mr. Boeckman is also entitled to the same benefits and under the same
conditions as are available to other full time employees of Breda. Some of
those benefits include life insurance and disability insurance, and
participation in Breda's defined benefit retirement and security program.
Breda contributes an amount equal to 8.6% of Mr. Boeckman's annual gross
salary under that program.
Mr. Boeckman may also receive an annual bonus in the discretion of Breda's
board of directors. He received a $2,000 bonus in each of 1996, 1997 and
1998.
Ms. Morlok. Ms. Morlok is employed as Breda's co-manager under her
employment agreement. The term of the employment agreement will end on
March 30, 2000. Breda may terminate Ms. Morlok's employment before that
time for any reason by giving her thirty days prior written notice, but in
that case, Breda must pay Ms. Morlok an amount equal to the remaining
salary that would have been paid to her through March 30, 2000, the normal
termination date of the employment agreement. Breda may also terminate the
employment agreement on five days prior written notice if the termination
is for cause. The employment agreement will also terminate thirteen weeks
after Ms. Morlok is determined to be totally disabled.
Ms. Morlok's annual salary under the employment agreement is $55,000. Her
salary is reviewed every six months.
27
<PAGE>
She also receives various other benefits under the employment agreement,
such as three weeks paid vacation per year; health, disability and life
insurance; a death benefit; participation in Breda's defined benefit
retirement and security program; a clothing allowance; and free local
telephone and basic cable services.
Breda does not have any written employment agreements with any officers or
any other employees.
Item 7. Certain Relationships and Related Transactions.
-----------------------------------------------
Breda has not been a party to any transaction during the last two years, or
proposed transaction, of the type required to be disclosed under this Item.
The transactions to which this Item applies are transactions involving
Breda or any of its subsidiaries and in which any of the following types of
persons has a direct or indirect material interest:
o directors or officers of Breda,
o nominees for election as a director of Breda,
o any beneficial owner of more than 5% of Breda's common stock, or
o any member of the immediate family of any person referred to
above.
Item 8. Description of Securities.
--------------------------
Breda is authorized to issue 5,000,000 shares of common stock. The common
stock has no par value. As of March 31, 1999, there were 37,722 shares of
common stock issued and outstanding, which were held by 658 different
shareholders.
The common stock can only be issued to:
o residents of the telephone exchange area served by Breda who
subscribe to Breda's telephone services, and
o entities which have their principal place of business in the
telephone exchange area served by Breda and which subscribe to
Breda's telephone services.
Residents of Macedonia, Iowa and the surrounding rural area cannot,
however, acquire any shares of common stock of Breda even if they are
receiving telephone services from Breda. Subscribers to any services from
any of Breda's subsidiaries cannot buy common stock of Breda.
28
<PAGE>
Since approximately January 1, 1996, no person has been allowed to purchase
more than thirty shares of common stock from Breda. A shareholder can own
more than thirty shares, subject to the 1% limitation discussed in the
following paragraph, but only thirty shares can be acquired through
issuance of the shares by Breda.
No shareholder may own more than 1% of the total issued and outstanding
common stock of Breda, unless:
o the shareholder already exceeded that percentage on February 28,
1995, or
o the shareholder goes over 1% as a result of Breda redeeming
shares of its common stock from other shareholders.
In either of those cases, the shareholder may not increase the percentage
of shares owned by the shareholder. If a shareholder owns 5% or more of the
ownership interests of an entity which owns shares of Breda's common stock,
the shares of Breda's common stock held by that entity and by the
shareholder will be added together for determining whether the 1%
limitation is exceeded.
There can only be one shareholder for each telephone number served by
Breda. There can also only be one shareholder for each household receiving
telephone services from Breda, even if the household has more than one
telephone number.
Shareholders do not have any preemptive or other rights to acquire any
shares which are issued by Breda. No shares of common stock are convertible
into any other securities.
There are no outstanding warrants, options or other rights to purchase
shares of common stock of Breda, and there are no outstanding securities of
Breda which are convertible into common stock of Breda.
Breda's board of directors determines the purchase price payable for
newly-issued shares of Breda's common stock. The board of directors has
historically required subscribers to pay a purchase price equal to
approximately 75% of the book value of Breda as of the close of the most
recent fiscal year ending before the sale. The board of directors has
historically utilized Breda's year-end audited financial statements in
making this determination. Breda's fiscal year ends on December 31. Under
this approach, the purchase price payable for shares of common stock issued
in 1995, 1996, 1997 and 1998 was, respectively, $27, $31, $41 and $64. The
current purchase price payable for newly-issued shares of common stock
under this approach is $82. Breda does not anticipate a change in this
approach in the foreseeable future, but the board of directors does have
the right to change the purchase price payable for shares of common stock
at any time, in its discretion.
All outstanding shares of common stock are fully paid and nonassessable.
29
<PAGE>
Each shareholder is entitled to only one vote on each matter presented for
the vote of shareholders, regardless of the number of shares of common
stock held by the shareholder. There are, however, two exceptions. One is
that shareholders who are not receiving services from Breda do not have any
voting rights. A person can be a shareholder without receiving services
from Breda if the person was already a shareholder on February 28, 1995, or
is a family member of such a shareholder, as described below. As of March
31, 1999, there were approximately 96 shareholders with no voting rights
because of the fact they were not receiving services from Breda. The other
exception is that each shareholder who previously held Class A stock of
Breda will get one vote for each share of Class A stock held by the
shareholder on February 28, 1995, and until one of the following occurs:
o the shareholder no longer receives services from Breda,
o the shareholder no longer resides in the telephone exchange area
served by Breda,
o the shareholder dies, or
o the shareholder transfers the shareholder's shares to someone
else.
As of March 31, 1999, there were 23 shareholders with multiple voting
rights arising from their prior ownership of Class A stock, and they have
one vote for each share of the former Class A Stock previously held by
them. Each share of the prior Class A stock was converted into two shares
of the current common stock at the time of the filing of Breda's Amended
and Restated Articles of Incorporation in March of 1995.
Any number of the shareholders of Breda present in person or represented by
proxy constitutes a quorum for any meeting of the shareholders. In other
words, a meeting of the shareholders of Breda can be held and conducted
with however many shareholders come to the meeting, even if the
shareholders at the meeting constitute a very small percentage of the total
number of shareholders. This is a potentially material issue for a
shareholder because only the vote of a majority of the shareholders present
or represented at a meeting is all that is generally necessary for the
shareholders of Breda to approve or take any action submitted to the
shareholders.
As just indicated, the vote of a majority of the shareholders present or
represented at a meeting is necessary to approve any matter submitted to
the shareholders, except that the vote of at least two-thirds of all of the
shareholders of Breda is necessary to:
o approve of the sale of Breda, the merger of Breda into another
corporation, the dissolution of Breda, or the sale of all or
substantially all of Breda's assets,
30
<PAGE>
and
o amend Article VIII of Breda's Restated Articles of Incorporation.
Article VII sets forth the requirement for the two-thirds vote of
the shareholders referred to immediately above.
There is no cumulative voting for directors.
Shareholders will only receive dividends if and when they are declared by
Breda's board of directors out of funds legally available for dividends.
Breda has only paid dividends on one occasion since it was incorporated in
1964 . The dividend was declared in April, 1999, and was in the amount of
$3.00 per share.
In the event of the dissolution, liquidation or winding up of Breda, the
shareholders are entitled to their proportionate share, based on the number
of shares held by them, of the net assets of Breda remaining after the
payment of all debts and liabilities of Breda.
Breda may, at the election of its board of directors, but is not required
to, redeem a shareholder's shares if:
o the shareholder is no longer receiving services from Breda,
unless the shareholder already was not receiving services from
Breda on February 28, 1995;
o the shareholder no longer resides in the telephone exchange area
served by Breda, unless the shareholder already resided outside
that area on February 28, 1995; or
o the shareholder dies.
The redemption price will be the fair value of the shares, as determined in
the sole discretion of Breda's board of directors. The board of directors
has historically redeemed shares at approximately 75% of Breda's book value
as of the close of the most recent fiscal year ending before the
redemption. The board of directors has historically utilized Breda's
year-end audited financial statements in making this determination. Under
this approach, the redemption price during 1995, 1996, 1997 and 1998 was,
respectively, $27, $31, $41 and $64. The current redemption price under
this approach will be $82. The board of directors may change this practice,
however, at any time and in its discretion.
In any of the above circumstances, a shareholder may, with the consent of
Breda's board of directors, transfer the shareholder's shares to another
person who is eligible to be a shareholder by reason of the fact that the
person is receiving services from Breda and is residing in the telephone
exchange area served by Breda (other than the Macedonia area).
31
<PAGE>
No shareholder can sell or transfer any of his or her shares of Breda to
any person who is not otherwise eligible to be a shareholder in Breda by
reason of the fact that the person is receiving services from Breda and is
residing in the telephone exchange area served by Breda (other than the
Macedonia area), with one exception. The exception is that a person who was
a shareholder on February 28, 1995, may transfer the shares held on that
date to a family member of the shareholder (which means a spouse, child,
grandchild, parent, grandparent, or sibling) even if the family member is
not receiving services from Breda and is not residing in the telephone
exchange area served by Breda. These transfers are not subject to Breda's
right of first refusal described in the following paragraph. Any family
member receiving shares by this process does not have the same right,
however, and can only sell or transfer the shares in accordance with the
Restated Articles of Incorporation of Breda.
Any shareholder who wants to sell or transfer his or her shares in Breda to
another shareholder or person who is eligible to be a shareholder must
first give Breda the right to purchase the shares. In this case, the
shareholder must give Breda at least sixty days prior written notice of the
proposed sale, including a copy of the written offer to purchase the
shares. Breda may elect to purchase the shares for the same price offered
to the shareholder at any time within sixty days after it receives the
notice from the shareholder. If Breda elects to buy the shares, it must pay
the purchase price in full upon the shareholder surrendering the stock
certificates for the shares to Breda.
Breda's bylaws may also contain provisions restricting the transfer of
shares. The current bylaws do not contain any restrictions, but the bylaws
can be amended by the directors or shareholders at any time.
Breda's board of directors is considering whether Breda should facilitate
or sponsor an auction of its shares of common stock among its shareholders,
and has generally advised its shareholders of this possibility. No firm
decision has been made on this issue, however, because the board of
directors needs to further consider the merits of an auction and what
procedures and guidelines should be established for any auction, if held.
Each director of Breda is elected for a three year term, and the terms of
office of the directors of Breda are staggered so that approximately one
third of the directors terms expire each year. This structure could delay
or defer a change in control of Breda which is attempted to be effected
through a change in the control of the board of directors of Breda. Each
director must also be a shareholder of Breda.
32
<PAGE>
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity and other
------------------------------------------------------------------------
Shareholder Matters.
--------------------
As of March 31, 1999, there were approximately 658 holders of record of
Breda's common stock.
Breda's common stock is not listed on any exchange, and there is no public
trading market for Breda's common stock. An investment in Breda's common
stock is also not a liquid investment because the Restated Articles of
Incorporation of Breda establish various restrictions on the transfer of
shares of its common stock. Those restrictions are summarized in Part I,
Item 8, of this registration statement.
Some of the restrictions on the transfers of Breda's common stock allow
Breda to redeem or repurchase shares of its common stock from its
shareholders in various circumstances. Since there is no public trading
market or any other principal market for Breda's common stock, repurchases
of the common stock by Breda currently is the primary method for a
shareholder to be able to sell his or her shares. As discussed in Item 8 of
Part I of this registration statement, Breda has historically redeemed its
common stock at approximately 75% of Breda's book value as of the close of
the most recent fiscal year ending before the redemption.
Over the period of January 1, 1996 through June 24, 1996, Breda repurchased
four hundred and twenty-four shares of its common stock from two
shareholders, at a purchase price of $27 per share. Over the period of June
25, 1996 through February 20, 1997, Breda repurchased seven hundred and
eighty-nine shares from nine different shareholders, at a purchase price of
$31 per share. Over the period of February 21, 1997 through March 1, 1998,
Breda repurchased one thousand nine hundred and ninety-six shares of its
common stock from fourteen different shareholders, at a purchase price of
$41 per share. Over the period of March 2, 1998 through December 31, 1998,
Breda repurchased three hundred and fifty-eight shares of its common stock
from five different shareholders, at a purchase price of $64 per share. No
shares were repurchased by Breda during the period of December 31, 1998
through March 31, 1999.
There may have been transfers among the shareholders of Breda during the
above periods for which Breda did not exercise its right of first refusal.
Breda has not agreed to register any of its shares of common stock under
any federal or state securities laws. After Breda has been subject to the
reporting requirements of the Securities Exchange Act of 1934 for a period
of ninety days, Rule 144 under the Securities Act of 1933 will be available
to permit the resale of shares of common stock
33
<PAGE>
by shareholders, subject to certain restrictions contained in Rule 144,
including the requirement that the shareholder has held his or her shares
for a period of one year prior to the date of resale. Once a shareholder
(other than a shareholder who is an officer or director of Breda) has held
his or her shares of common stock for a period of two years, such
shareholder will be able to resell such shares without restriction under
Rule 144.
As discussed in Item 8 in Part I of this registration statement, Breda's
board of directors is considering facilitating an auction of its shares of
common stock among its shareholders, but no firm decision has been made on
this issue.
Breda has only declared and paid one dividend to its shareholders since
Breda was incorporated in 1964. The dividend was declared on April 21,
1999. It was in the amount of $3.00 per share, for an aggregate dividend of
$113,166. Breda currently contemplates retaining any future earnings for
use in its business, and Breda does not anticipate paying any other
dividends in the foreseeable future.
Payment of dividends is within the discretion of Breda's board of
directors, and out of funds legally available therefore as provided in the
Iowa Business Corporation Act.
Item 2. Legal Proceedings.
------------------
Breda currently is not aware of any pending legal proceeding to which Breda
is a party or to which any of Breda's property is subject, other than
routine litigation that is incidental to its business. Breda currently is
also not aware that any governmental authority is contemplating any legal
proceeding against Breda or its property.
Item 3. Changes in and Disagreements with Accountants.
----------------------------------------------
Breda has not had any change in its accountants during the last three
years, or any disagreements with its accountants during that period which
are of the type required to be disclosed under this Item.
Item 4. Recent Sales of Unregistered Securities.
----------------------------------------
Breda sold a total of five hundred fifty shares of its common stock in 1996
to forty-five different subscribers. Twenty-eight shares were sold to one
subscriber on January 1, 1996, for a purchase price of $27 per share. Two
hundred and thirty-nine shares were issued on January 19, 1996 to a total
of fourteen different subscribers, for a purchase price of $27 per share.
Two hundred and twelve shares of common stock were issued on February 20,
1996 to a total of twenty different subscribers, at a purchase price of $27
per share. Thirty-three shares of common stock were issued on May 24, 1996
to four different subscribers, at a purchase price of $27 per share.
Thirty-one shares of common stock were issued on June 28, 1996 to two
different subscribers, at a purchase price of
34
<PAGE>
$31 per share. Five shares of common stock were issued on July 5, 1996 to
two different subscribers, at a purchase price of $31 per share. Two shares
of common stock were issued on November 4, 1996 to two different
subscribers, at a purchase price of $31 per share.
A total of nine shares of common stock were issued in 1997 to two different
subscribers, at a purchase price of $31 per share.
Eighty-eight shares of common stock were issued on January 13, 1998 to
three different subscribers, at a purchase price of $41 per share. Twenty
shares were issued on February 9, 1998 to one subscriber, at a purchase
price of $41 per share. Sixteen shares of common stock were issued on April
1, 1998 to one subscriber, at a purchase price of $41 per share. Thirty
shares of common stock were issued on November 11, 1998 to one subscriber,
at a purchase price of $64 per share.
No shares of common stock were issued by Breda in 1999, through March 31,
1999.
The purchase price paid by the subscribers in the above sales was
approximately 75% of Breda's book value as of the close of the most recent
fiscal year ending before the sale, as determined by the board of directors
from Breda's year-end audited financial statements.
All of the above-referenced sales of common stock were made pursuant to
available exemptions under the Securities Act of 1933, including, without
limitation, Rule 504.
Item 5. Indemnification of Directors and Officers.
------------------------------------------
Section 1 of Article IV of the Amended and Restated Articles of
Incorporation of Breda provides that a director shall not be personally
liable to Breda or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to Breda or its
shareholders,
o for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law,
o for a transaction from which the director derived an improper
personal benefit, or
o under Section 490.833 of the Iowa Business Corporation Act.
Section 490.833 imposes liability upon a director who votes for or assents
to a distribution by Breda which was made in violation of the Iowa Business
Corporation Act or Breda's articles of incorporation, but only if the
director did not comply with the standard of conduct required under the
Iowa Business Corporation act. The liability of
35
<PAGE>
a director in this circumstance is to Breda and is limited to the amount of
the distribution that exceeds what could have been distributed by Breda
without violating the Iowa Business Corporation Act or Breda's articles of
incorporation. Breda's Amended and Restated Articles of Incorporation do
not, however, impose any requirements or limitations on distributions by
Breda.
Section 1 of Article IV also provides that if Iowa law is changed to permit
further elimination or limitation of the liability of directors, then the
liability of Breda's directors will automatically be eliminated or limited
to fullest extent as then permitted.
Breda is required to indemnify its directors and officers who are wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the director or officer was a party because the director is or was a
director of Breda or the officer is or was an officer of Breda, as the case
may be, against reasonable expenses incurred in connection with the
proceeding.
Section 2 of Article IV of the Amended and Restated Articles of
Incorporation of Breda and Section 8.1 of the Amended and Restated Bylaws
of Breda also provide that each individual who is or was a director of
Breda (and the heirs, executors, personal representatives or administrators
of the individual) shall be indemnified and held harmless by Breda to the
fullest extent permitted by applicable law. Accordingly, Breda will
indemnify an individual who is made a party to a proceeding because the
individual is or was a director of Breda against liability incurred in the
proceeding if all of the following apply:
o the individual acted in good faith,
o the individual reasonably believed:
o in the case of conduct in the individual's official capacity
with Breda, that the individual's conduct was in Breda's
best interests, and
o in all other cases, that the individual's conduct was at
least not opposed to Breda's best interest; and
o in the case of any criminal proceeding, the individual had no
reasonable cause to believe the individual's conduct was
unlawful.
Breda cannot, however, indemnify a director in either of the following
circumstances:
o in connection with a proceeding by or in the right of Breda in
which the director was adjudged liable to Breda, or
36
<PAGE>
o in connection with any other proceeding charging improper
personal benefit to the director, whether or not involving action
in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly
received by the director.
Also, indemnification in connection with a proceeding by or in the right of
Breda is limited to reasonable expenses incurred with the proceeding.
Breda will also pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final disposition of
the proceeding if any of the following apply:
o the director furnishes Breda a written affirmation of the
director's good faith belief that the director has met the
applicable standard of conduct described in the Iowa Business
Corporation Act,
o the director furnishes Breda a written undertaking, executed
personally or on the director's behalf, to repay the advance if
it is ultimately determined that the director did not meet that
standard of conduct, or
o a determination is made that the facts then known to those making
the determination would not preclude indemnification under the
Iowa Business Corporation Act.
Breda's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws also provide that the indemnification to be provided by
Breda will be to the fullest extent permitted by applicable law, as the law
may later be amended. Accordingly, if applicable Iowa law is later amended
to authorize further indemnification of directors, Breda's directors will
automatically be entitled to indemnification to the fullest extent then
permitted.
Breda may also indemnify its officers, employees and agents to such extent
and such effect as Breda's board of directors shall determine to be
appropriate and authorized by applicable law.
Any repeal or amendment by the shareholders of any of the indemnification
provisions of Breda's Amended and Restated Articles of Incorporation or
Amended and Restated Bylaws will not adversely affect any right or
protection of a director or officer existing at the time of such repeal or
amendment. The indemnification rights in Breda's Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws are also not
exclusive of any other right which any person may have or later acquire
under any statute, agreement, vote of shareholders or disinterested
directors, or otherwise.
37
<PAGE>
A director or officer of Breda who is a party to a proceeding may also
apply for indemnification to the court conducting the proceeding. The court
may order indemnification if it determines that either of the following
apply:
o the director or officer is entitled to mandatory indemnification
under the Iowa Business Corporation Act, in which case the court
shall also order Breda to pay the director's and officer's
reasonable expenses incurred to obtain the court ordered
indemnification, or
o the director or officer is fairly and reasonably entitled to
indemnification in view of all relevant circumstances, whether or
not the director or officer met the applicable standard of
conduct or was adjudged liable in the proceeding.
In the latter event, however, if the director or officer was adjudged
liable, indemnification is limited to reasonable expenses incurred.
Breda does carry insurance covering its potential indemnification
obligations.
PART F/S
Breda's financial statements begin on page F-1 to this registration
statement.
The financial statements included with this filing are as follows:
o Financial Statements for the Periods Ended March 31, 1999 and
1998.
o Financial Statements for the Years Ended December 31, 1998 and
1997.
38
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
FINANCIAL STATEMENTS
FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998
F-1
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Breda, Iowa
Contents
Page
----
Independent Accountant's Compilation Report F-3
Consolidated Financial Statements:
Balance Sheets F-4 - F-5
Statements of Income F-6 - F-7
Statements of Cash Flows F-8 - F-9
Notes to Consolidated Financial Statements F-10
F-2
<PAGE>
April 23, 1999
To the Board of Directors
Breda Telephone Corporation
Independent Accountant's Compilation Report
We have compiled the accompanying consolidated balance sheet of Breda Telephone
Corporation (an Iowa Corporation) and subsidiaries as of March 31, 1999 and the
related consolidated statements of income and cash flows for the three months
ended March 31, 1999 and 1998 in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting, in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying consolidated financial statements as of or for the
period ended March 31, 1999, and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the disclosures and the
statement of stockholders' equity required by generally accepted accounting
principles. If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the Company's
financial position, results of operations and cash flows. Accordingly, these
financial statements are not designed for those who are not informed about such
matters.
The financial statements for the year ended December 31, 1998 were audited by us
and we expressed an unqualified opinion on them in our report dated March 11,
1999, but we have not performed any auditing procedures since that date.
Anderson and Company
By /s/ J.R. Naig
----------------------------
J.R. Naig
F-3
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,127,711 $ 782,959
Current portion of investments 266,076 114,550
Due from customers 44,445 70,268
Unbilled access revenue 159,085 159,085
Other accounts receivable 298,253 419,691
Interest receivable 119,249 21,455
Materials and supplies 54,618 51,929
Merchandise held for resale 31,501 28,350
Deposit 17,520 365
Prepayments 59,382 68,898
----------- -----------
3,177,840 1,717,550
----------- -----------
NONCURRENT ASSETS:
Investments, less current portion 7,144,383 1,530,045
Other investments 2,446,469 2,468,022
Nonregulated investments:
Net telemarketing plant 537 578
Net CATV plant 1,936,303 2,007,612
Net nonregulated land and equipment 120,907 193,557
Net DBS distribution rights -- 469,342
Net nonregulated telephone plant 499,049 487,254
Net goodwill 1,261,826 1,284,105
Deferred maintenance and retirements, net 15,943 21,390
----------- -----------
13,425,417 8,461,905
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Telephone plant 6,988,615 6,985,718
Less: Reserve for depreciation 3,882,638 3,758,790
----------- -----------
3,105,977 3,226,928
Acquisition adjustment, net 3,680 4,058
Telephone plant under construction 421,340 265,887
----------- -----------
3,530,997 3,496,873
----------- -----------
TOTAL ASSETS $20,134,254 $13,676,328
=========== ===========
</TABLE>
See Independent Accountant's Compilation Report And Accompanying Notes.
F-4
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Audited)
----------- -----------
<S> <C> <C>
CURRENT AND ACCRUED LIABILITIES:
Current maturities of long-term debt $ 655,072 $ 655,072
Accounts payable 181,156 443,669
Line of credit -- 750,000
Customer deposits 29,019 28,989
Accrued interest -- 400
Accrued taxes 3,179,324 177,033
Other current liabilities 84,817 87,909
----------- -----------
4,129,388 2,143,072
----------- -----------
LONG-TERM DEBT:
RTFC mortgage notes, less current maturities 7,012,240 7,156,342
----------- -----------
DEFERRED CREDITS:
Unamortized investment tax credits 60,874 63,317
Deferred income taxes 182,407 205,571
----------- -----------
243,281 268,888
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value, authorized 5,000,000 shares,
issued and outstanding at $64 stated value, 37,722 shares 2,414,208 2,414,208
Retained earnings 6,335,137 1,693,818
----------- -----------
8,749,345 4,108,026
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $20,134,254 $13,676,328
=========== ===========
</TABLE>
See Independent Accountant's Compilation Report And Accompanying Notes.
F-5
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Basic local network services $ 114,263 $ 98,391
Network access services 554,477 626,523
Carrier billing and collection 25,084 23,498
Miscellaneous 9,181 9,120
Uncollectible 616 5,534
----------- -----------
703,621 763,066
----------- -----------
OPERATING EXPENSES:
Plant specific operations 53,721 29,607
Plant nonspecific operations 22,870 18,554
Depreciation 123,849 84,227
Amortization 25,476 7,397
Customer operations 32,894 29,855
Corporate operations 176,061 109,087
General taxes 21,019 32,951
Income taxes 79,993 146,391
----------- -----------
535,883 458,069
----------- -----------
OPERATING INCOME 167,738 304,997
----------- -----------
NON-OPERATING INCOME (EXPENSES):
Interest and dividend income 110,146 28,141
Gain on sale of DBS division 7,436,415 --
Loss on extinguishment of debt -- (66,913)
Miscellaneous income (loss) 3,062 (538)
Income (loss) from nonregulated equipment and
services, net 52,773 (7,207)
Income from DBS operations, net -- 25,111
Income (loss) from telemarketing operations, net (4,773) 8,559
Loss from CLEC operations, net (15,779) (120)
Income from CATV operations, net 2,968 12,523
Income taxes (3,004,366) (14,999)
----------- -----------
4,580,446 (15,443)
----------- -----------
NET INCOME BEFORE INTEREST EXPENSE $ 4,748,184 $ 289,554
----------- -----------
</TABLE>
See Independent Accountant's Compilation Report And Accompanying Notes.
F-6
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
For the Three Months Ended March 31, 1999 and 1998
1999 1998
---------- ----------
Net Income Before Interest Expense $4,748,184 $ 289,554
---------- ----------
INTEREST EXPENSE:
Interest on long-term debt 106,865 70,356
Amortization of debt expense -- 93
---------- ----------
106,865 70,449
---------- ----------
NET INCOME $4,641,319 $ 219,105
========== ==========
NET INCOME PER SHARE (Note 2) $ 122.71 $ 5.79
========== ==========
See Independent Accountant's Compilation Report And Accompanying Notes.
F-7
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,641,319 $ 219,105
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 211,174 163,970
Amortization 28,534 23,093
Deferred income taxes (23,164) --
Amortization of investment tax credits (2,443) (2,442)
Gain on sale of DBS division (7,436,415) --
(Increase) decrease in current assets:
Due from customers 7,626 (14,090)
Other accounts receivable 121,438 230,266
Interest receivable (97,794) --
Materials and supplies (2,689) (1,433)
Merchandise held for resale (3,151) (28,469)
Deposit (17,155) 4,635
Prepayments 9,516 7,101
Increase (decrease) in current liabilities:
Current maturities of long-term debt -- 231,210
Accounts payable (263,013) 23,170
Note payable -- (393)
Accrued interest (400) (13,492)
Accrued taxes 3,002,291 (78,095)
Other current liabilities (3,092) (6,610)
----------- -----------
Net Cash provided by Operating Activities $ 172,582 $ 757,526
----------- -----------
</TABLE>
See Independent Accountant's Compilation Report And Accompanying Notes.
F-8
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to telephone plant $ (158,350) $ (16,879)
Salvage, less cost of removal 3,159 --
Additions to CATV plant (14,054) (86,920)
Additions to nonregulated land and equipment (45,517) --
Additions to nonregulated telephone plant (12,882) (145,000)
Increase in investments (5,765,864) (100,229)
Decrease in other investments 21,553 12,247
Additions to start-up costs -- (61,429)
Proceeds from sale of DBS division, net of commissions paid 8,038,197 --
----------- -----------
Net Cash provided by (used in) Investing Activities 2,066,242 (398,210)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in customer deposits 30 235
Proceeds from long-term debt -- 3,614,377
Payments and reclassifications of long-term debt (144,102) (3,842,329)
Payment on outstanding line-of-credit (750,000) --
Redemption of common stock, net -- 4,346
----------- -----------
Net Cash used in Financing Activities (894,072) (223,371)
----------- -----------
Net increase in cash 1,344,752 135,945
Cash at beginning of period 782,959 612,885
----------- -----------
Cash at end of period $ 2,127,711 $ 748,830
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 125,929 $ 93,945
Income taxes $ 65,000 $ 260,000
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Other investments acquired through debt financing $ -- $ 1,036
----------- -----------
</TABLE>
See Independent Accountant's Compilation Report And Accompanying Notes.
F-9
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes To Unaudited Consolidated Financial Statements
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
items) necessary to present fairly the financial position as of March 31,
1999 and the results of operations and changes in cash flows for the three
months ended March 31, 1999 and 1998.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 1998 audited
financial statements. The results of operations for the period ending March
31, 1999 are not necessarily indicative of the operating results of the
entire year.
2. NET INCOME PER COMMON STOCK
Net income per common share for 1999 and 1998 was computed by dividing the
weighted average number of shares of common stock outstanding into the net
income.
3. DISPOSITION OF DBS DIVISION
On January 11, 1999, the Company sold substantially all of its assets and
liabilities of their Direct Broadcast Satellite (DBS) division. The Company
received cash of $8,274,689; however, $230,000 was paid as a commission and
$6,492 was held in an escrow account until final sale adjustments were
completed. The transaction resulted in a gain of $7,436,415, which was
included in operations during the first quarter of 1999.
4. SUBSEQUENT EVENT
On April 21, 1999, the Breda Telephone Corporation board of directors
resolved that the stated value of common stock shares outstanding would be
increased from $64 per share to $82 per share. The increase was effective
immediately.
F-10
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
F-11
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Breda, Iowa
Contents
Page
----
Independent Auditor's Report F-13
Consolidated Financial Statements:
Balance Sheets F-14 - F-15
Statements of Income F-16 - F-17
Statements of Stockholders' Equity F-18
Statements of Cash Flows F-19 - F-21
Notes to Consolidated Financial Statements F-22 - F-50
Supplementary Information:
Independent Auditor's Report on Supplementary
Information F-51
Consolidating Financial Statements:
Balance Sheets F-52 - F-55
Statements of Income F-56 - F-59
F-12
<PAGE>
March 11, 1999
To the Board of Directors
Breda Telephone Corporation
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of Breda Telephone
Corporation (an Iowa Corporation) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Breda Telephone
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Anderson and Company
By /s/ J.R. Naig
------------------------
J.R. Naig
F-13
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 782,959 $ 612,885
Cash - RUS construction fund -- 6,535
Current portion of investments (Note 3) 114,550 50,555
Due from customers 70,268 110,189
Unbilled access revenue 159,085 148,712
Other accounts receivable (Note 4) 419,691 454,470
Interest receivable 21,455 26,049
Materials and supplies 51,929 31,118
Merchandise held for resale 28,350 57,782
Deposit 365 5,000
Prepayments 68,898 51,201
----------- -----------
1,717,550 1,554,496
----------- -----------
NONCURRENT ASSETS:
Investments, less current portion (Note 3) 1,530,045 1,716,965
Other investments (Note 5) 2,468,022 1,651,245
Nonregulated investments (Note 6):
Net telemarketing plant 578 70,579
Net CATV plant 2,007,612 1,840,266
Net nonregulated land and equipment 193,557 449,989
Net DBS distribution rights 469,342 512,010
Net nonregulated telephone plant 487,254 --
Net business start-up costs -- 49,115
Net goodwill 1,284,105 --
Deferred maintenance and retirements, net (Note 7) 21,390 49,467
Unamortized debt expense, net -- 6,847
----------- -----------
8,461,905 6,346,483
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Note 8):
Telephone plant 6,985,718 6,111,241
Less: Reserve for depreciation 3,758,790 4,039,849
----------- -----------
3,226,928 2,071,392
Acquisition adjustment, net 4,058 5,566
Telephone plant under construction 265,887 --
----------- -----------
3,496,873 2,076,958
----------- -----------
TOTAL ASSETS $13,676,328 $ 9,977,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- -----------
<S> <C> <C>
CURRENT AND ACCRUED LIABILITIES:
Current maturities of long-term debt (Note 9) $ 655,072 $ 423,862
Accounts payable 443,669 658,785
Line of credit (Note 9) 750,000 --
Note payable -- 393
Customer deposits 28,989 27,799
Accrued interest 400 13,492
Accrued taxes 177,033 340,474
Other current liabilities 87,909 66,652
----------- -----------
2,143,072 1,531,457
----------- -----------
LONG-TERM DEBT (Note 9):
RTFC mortgage notes, less current maturities 7,156,342 1,627,164
RTB mortgage notes, less current maturities -- 2,025,663
RUS mortgage notes, less current maturities -- 1,393,438
Building mortgage note, less current maturities -- 79,382
----------- -----------
7,156,342 5,125,647
----------- -----------
DEFERRED CREDITS (Note 10):
Unamortized investment tax credits 63,317 73,086
Deferred income taxes 205,571 26,367
----------- -----------
268,888 99,453
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value, authorized 5,000,000 shares,
issued and outstanding at $64 stated value, 37,722
shares, and issued and outstanding at $41 stated value,
37,928 shares, respectively 2,414,208 1,555,048
Retained earnings 1,693,818 1,666,332
----------- -----------
4,108,026 3,221,380
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,676,328 $ 9,977,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Basic local network services $ 398,215 $ 346,471
Network access services 2,465,833 2,304,782
Carrier billing and collection 100,570 163,597
Miscellaneous 28,904 30,746
Uncollectible 5,245 2,644
2,998,767 2,848,240
----------- -----------
OPERATING EXPENSES:
Plant specific operations 203,923 106,703
Plant nonspecific operations 103,545 63,112
Depreciation (Note 16) 421,425 399,044
Amortization 75,433 29,585
Customer operations 150,011 198,755
Corporate operations 497,156 250,771
General taxes 86,627 66,503
Income taxes (Note 10) 418,277 560,699
----------- -----------
1,956,397 1,675,172
----------- -----------
OPERATING INCOME 1,042,370 1,173,068
----------- -----------
NON-OPERATING INCOME (EXPENSES):
Interest and dividend income 180,710 89,848
Gain on sale of investments 8,853 --
Loss on disposal of property (118,443) --
Loss on extinguishment of debt (66,913) --
Miscellaneous income 19,652 6,666
Loss from joint venture, net (15,702) --
Income from cellular partnership 109,973 74,065
Income from cellular settlements 409,212 --
Income from nonregulated equipment and
services, net (Note 11) 125,749 215,635
Loss from DBS operations, net (Note 12) (145,686) (18,631)
Income from telemarketing operations, net (Note 13) 37,180 8,387
Loss from CLEC operations, net (Note 14) (78,274) (634)
Loss from CATV operations, net (Note 15) (15,219) (36,740)
Income taxes (Note 10) (194,592) (120,842)
----------- -----------
$ 256,500 $ 217,754
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
NET INCOME BEFORE INTEREST EXPENSE $1,298,870 $1,390,822
---------- ----------
INTEREST EXPENSE:
Interest on long-term debt 389,387 278,348
Amortization of debt expense 6,847 4,556
---------- ----------
396,234 282,904
---------- ----------
NET INCOME $ 902,636 $1,107,918
========== ==========
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 39,913 $ 1,237,303 $ 957,656 $ 2,194,959
Net income 1,107,918 1,107,918
Common stock redeemed, net (1,985) (81,445) (52) (81,497)
Stock value adjustment (Note 20) 399,190 (399,190)
----------- ----------- ----------- -----------
Balance, December 31, 1997 37,928 1,555,048 1,666,332 3,221,380
Net income 902,636 902,636
Common stock redeemed, net (206) (15,990) (15,990)
Stock value adjustment (Note 20) 875,150 (875,150)
----------- ----------- ----------- -----------
Balance, December 31, 1998 37,722 $ 2,414,208 $ 1,693,818 $ 4,108,026
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 902,636 $ 1,107,918
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation (Note 16) 775,293 738,735
Amortization 132,624 75,656
Deferred income taxes, net of effects from purchase
of Westside Independent Telephone Company
and Westside Communications, Inc. (Note 10) (146,224) (22,101)
Amortization of investment tax credits (Note 10) (9,769) (9,769)
Change in method of accounting (Note 6) 49,115 --
(Increase) decrease in current assets, net of effects
from purchase of Westside Independent Telephone
Company and Westside Communications, Inc.:
Cash - RUS construction fund 6,535 52,677
Due from customers 40,929 400
Unbilled access revenue (10,373) (7,877)
Other accounts receivable 64,409 (106,169)
Interest receivable 4,594 (16,809)
Materials and supplies (18,681) (2,194)
Merchandise held for resale 29,432 (3,276)
Deposits 4,635 11,940
Prepayments (11,790) (18,315)
Increase (decrease) in current liabilities, net of effects
from purchase of Westside Independent Telephone Company
and Westside Communications, Inc.:
Current maturities of long-term debt 231,210 35,880
Accounts payable (244,699) 502,416
Note payable (393) (4,641)
Accrued interest (13,092) (435)
Accrued taxes (172,137) 53,909
Other current liabilities 20,157 (9,707)
----------- -----------
Net Cash provided by Operating Activities $ 1,634,411 $ 2,378,238
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to telephone plant $(1,258,653) $ (348,209)
Salvage, less cost of removal 280,820 33,064
Additions to CATV plant (96,896) (32,146)
Acquisition of CATV plant (64,610) --
Additions to nonregulated land and equipment (44,524) (61,047)
Additions to nonregulated telephone plant (491,282) --
(Increase) decrease in investments 122,925 (1,767,520)
(Increase) decrease in other investments (99,961) 20,025
Additions to start-up costs -- (50,809)
Decrease in notes receivable -- 276,000
----------- -----------
Net Cash used in Investing Activities (1,652,181) (1,930,642)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in customer deposits (160) 511
Proceeds from line of credit 750,000 --
Proceeds from long-term debt 3,650,050 27,966
Payments and reclassifications of long-term debt (4,196,056) (424,443)
Purchases of stock in excess of par -- (52)
Redemption of common stock, net (15,990) (81,445)
----------- -----------
Net Cash provided by (used in) Financing Activities 187,844 (477,463)
----------- -----------
Net increase (decrease) in cash 170,074 (29,867)
Cash at beginning of year 612,885 642,752
----------- -----------
Cash at end of year $ 782,959 $ 612,885
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 480,639 $ 380,172
Income taxes $ 981,473 $ 651,078
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
------- ------
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Other investments acquired through debt financing $191,321 $ --
======== ======
During 1998, the Company purchased all of the capital stock of Westside
Independent Telephone Company and Westside Communications, Inc. for
$2,264,327. The following is a summary of the purchase which was entirely
debt financed.
Fair value of telephone plant $ 638,724 $
Fair value of CATV plant 212,560
Current Assets 38,675
Other Investments 404,472
Goodwill 1,336,083
Current Liabilities (40,759)
Deferred Credits (325,428)
----------- ------
$ 2,264,327 $ --
=========== ======
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING GUIDELINES
The accounting policies of Breda Telephone Corporation and subsidiaries
conform to generally accepted accounting principles applicable to
nonregulated telephone utilities. The accounting records of the Company are
maintained in accordance with Part 32-Uniform System of Accounts for Class
A Telephone Companies as prescribed by the Federal Communications
Commission (FCC) with additional guidance and interpretations from the Iowa
Utilities Board.
The accounting records for the Company's subsidiary CATV operations are
maintained in accordance with the Uniform System of Accounts for CATV
companies as prescribed by the National Association of Regulatory Utility
Commissioners.
NATURE OF BUSINESS OPERATIONS
The Company offers telephone services to customers in seven communities
within West Central Iowa. They also provide Direct Broadcast Service
("DBS") to cabled and noncabled residences in nine counties located in Iowa
and Nebraska, as well as cable television services to customers in nineteen
communities in West Central Iowa and Nebraska. In addition, Prairie
Telephone Company, Inc., a wholly-owned subsidiary of Breda Telephone
Corporation, offers telemarketing services through their affiliate, Pacific
Junction Telemarketing Center, Inc. Overall, the telephone services are the
predominate line of business, based on earnings.
BASIS OF ACCOUNTING
The accrual basis of accounting is followed for the recording of revenues
and expenses. Income is recorded when earned and expenses are recorded as
soon as they result in liabilities for benefits received.
CONSOLIDATION
The consolidated financial statements include the accounts of Breda
Telephone Corporation and its wholly-owned subsidiaries, Prairie Telephone
Company, Inc., Westside Independent Telephone Company, and Tele-Services,
Ltd. All assets and liabilities of the subsidiaries are consolidated with
the assets and liabilities of the Company using the purchase method of
accounting. All significant intercompany accounts and transactions were
eliminated upon consolidation.
F-22
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
ACCOUNTING FOR INVESTMENTS
Investments in companies in which the Company has less than a 20% interest
are carried at cost. Dividends received from those companies are included
in other income. Dividends received in excess of the Company's
proportionate share of accumulated earnings are applied as a reduction of
the cost of the investment.
Investments of 20% or greater are carried at cost, adjusted for the
Company's proportionate share of their undistributed earnings or losses.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing consolidated
financial statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
and the reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the consolidated financial
statements.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all
demand deposits and certificates of deposit with original maturities of
three months or less to be cash equivalents.
In addition, the Company has on deposit at a local bank an amount exceeding
the insurable limits by approximately $65,000.
INVENTORIES
Materials and supplies and merchandise held for resale by the utility are
valued at the lower of cost or market. Inventories are reported on the
first-in first-out method.
F-23
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
PROPERTY, PLANT AND EQUIPMENT
The Company, including their subsidiaries Prairie Telephone Company, Inc.
and Westside Independent Telephone Company, follows the accounting policies
with respect to maintenance, repairs, renewals, betterments and retirements
as outlined in the Uniform System of Accounts for Telephone Companies
prescribed by the Federal Communications Commission (FCC). Additions,
replacements and renewals of property determined to be units of property
are charged to telephone plant accounts. Property retirements are charged
in total to the accumulated depreciation reserve accounts and no gain or
loss is recognized at the time properties are retired or otherwise
disposed. However, vehicles, tools, other work equipment, computers,
furniture and office equipment are accounted for on a unit basis and,
therefore, when retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income. Repairs and renewals of minor items of
property are included in plant specific operations or maintenance expense
accounts.
With the exception of vehicles, tools, other work equipment, computers,
furniture and office equipment which are depreciated on the unit,
straight-line basis, the Company provides for depreciation for financial
reporting purposes on the straight-line basis by the application of rates,
based on the estimated service lives of the various classes of depreciable
property.
The subsidiary companies, excluding Prairie Telephone Company, Inc. and
Westside Independent Telephone Company, record property, plant and
equipment at cost. Expenditures for major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to
expense as incurred. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in income. Depreciation is recorded
on the straight-line basis.
ACQUISITION ADJUSTMENT
The acquisition adjustment included in property, plant and equipment
represents the excess of purchase price over book value assigned to
telephone plant acquired. The acquisition adjustment is being amortized
over a 15-year period and has less than three years remaining before being
fully amortized.
F-24
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
REVENUE RECOGNITION
All revenues are recognized when earned regardless of the period in which
they are billed.
Revenues relating to the provision of toll services to customers are
derived, in part, from tariffed access charges to toll service providers
(interexchange carriers), and in part from sharing in interstate pools.
Revenues are determined in accordance with nationwide average cost
schedules.
INCOME TAXES
The Company follows the practice of recording investment tax credits as
deferred income, to be amortized over the life of the assets providing the
credit as required by the Public Service Commission.
Both the Company and the subsidiaries account for deferred taxes using the
asset and liability method. The objective of the asset and liability method
is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax reporting
basis of the entities assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled.
Deferred income taxes result from transactions which enter into the
determination of taxable income in different periods than that recorded for
the financial reporting process. The principal sources of deferred income
taxes are accelerated tax depreciation on property, plant and equipment and
partnership profits and losses.
2. ASSETS PLEDGED
Substantially all assets are pledged as security for the long-term debt to
the RTFC.
F-25
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS
Investments include marketable debt and equity securities. They are
classified into three separate categories which are given specific
accounting treatment as follows:
<TABLE>
<CAPTION>
Classification Accounting Treatment
-------------- --------------------
<S> <C>
Held-to-maturity Amortized cost
Debt securities with the intent
and ability to hold to maturity
Trading securities Fair value, with unrealized holding gains
Debt and equity securities and losses included in earnings
bought and held primarily for sale
in the near term
Available-for-sale Fair value, with unrealized holding gains
Debt and equity securities not and losses excluded from earnings and
classified as held-to-maturity or reported as a separate component of
trading stockholders' equity
Listed below are the investments as of December 31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Market
December 31, 1998 Cost Gain (Loss) Value
----------------- ----------- ----------- ----------
<S> <C> <C> <C>
Held-to-Maturity:
Municipal Bonds $1,520,186 $ 15,279 $1,535,465
U.S. Treasury Notes 35,000 2,088 37,088
Government Securities 50,000 547 50,547
Available for sale:
Common and Preferred Stock 39,409 39,409
---------- ---------- ----------
$1,644,595 $ 17,914 $1,662,509
========== ========== ==========
</TABLE>
F-26
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS, (Continued)
Gross
Amortized Unrealized Market
December 31, 1997 Cost Gain (Loss) Value
----------------- ---------- ------------ ----------
Held-to-Maturity:
Municipal Bonds $1,696,458 $ 14,433 $1,710,891
U.S. Treasury Notes 71,062 1,447 72,509
---------- ---------- ----------
$1,767,520 $ 15,880 $1,783,400
========== ========== ==========
The carrying value of the investments and presentation in the accompanying
balance sheets is as follows:
1998 1997
---------- ----------
Current:
Held-to-Maturity $ 75,141 $ 50,555
Available-for-sale 39,409 --
---------- ----------
114,550 50,555
---------- ----------
Noncurrent:
Held-to-Maturity 1,530,045 1,716,965
Total Investments $1,644,595 $1,767,520
========== ==========
The Company's investments in Municipal Bonds mature on various dates
beginning in 1999 until the year 2019, with the final bond maturing in the
year 2022. The U.S. Treasury Notes mature on February 15, 2008 and the
government securities are callable on October 1, 1999. The Company had
realized gains of $8,500 in 1998. The specific identification method was
used to determine cost when calculating realized gains and losses.
F-27
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
4. OTHER ACCOUNTS RECEIVABLE
Listed below are the other accounts receivable as of December 31, 1998 and
1997:
1998 1997
-------- --------
NECA Settlements $ 48,349 $190,842
Telemarketing 101,769 118,435
Cellular Commissions 75,050 75,625
Long Distance Carriers 189,275 59,162
Miscellaneous 5,248 10,406
-------- --------
$419,691 $454,470
======== ========
5. OTHER INVESTMENTS
Other investments at December 31, 1998 and 1997, consist of nonmarketable
equity securities and certificates carried at cost which approximates
market, capital contributions to partnerships and various memberships as
shown below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Alpine Communications, L.C $ 600,000 $ 600,000
Rural Telephone Finance Cooperative - certificates 538,422 247,831
RSA #1, Ltd. 348,542 221,588
RSA #7, Ltd. 144,049 144,049
RSA #8, Ltd. 210,129 29,897
Central Iowa Cellular, Inc. 206,770 206,770
Rural Telephone Bank - stock 162,806 156,966
Quad County Communications 152,057 --
Iowa Network Services - stock 78,705 30,563
Telephone Acquisition Group, L.L.C 15,000 --
Breda Country Club - stock 10,000 10,000
Rural Telephone Finance Cooperative - membership 1,000 1,000
Co Bank - stock 507 2,581
Miscellaneous 35 --
---------- ----------
$2,468,022 $1,651,245
========== ==========
</TABLE>
F-28
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
5. OTHER INVESTMENTS, (Continued)
During 1998, the Company became involved in a new investment, Telephone
Acquisition Group, L.L.C. (TAG). The Company purchased one unit of the TAG
limited liability company. The TAG group includes several Independent
Telephone Companies whom have formed an entity in order to bid on GTE
properties.
The Company continues to have 13.32% interest in Alpine Communications,
L.C. (Alpine). The Alpine group includes several Independent Telephone
Companies whom have formed an entity and have purchased U.S. West telephone
properties in Iowa.
The Company's percentage interests in RSA #1, Ltd., RSA #7, Ltd., RSA #8,
Ltd. and Central Iowa Cellular, Inc. (Des Moines MSA) partnerships are
9.0%, 7.1%, 11.7% and 4.0%, respectively at December 31, 1998. In addition,
the Company owns a 16.7% interest in RSA #9, Ltd. partnership of which they
have no original cash investment.
During 1998, the Company extinguished its debt with the Rural Telephone
Bank and converted their Class B stock into Class C stock. The value of the
Class C stock at December 31, 1998 was $1,170,000. The Company continued to
hold $147,231 of Class B stock at December 31, 1998 which they anticipate
converting to Class C stock during 1999. The Class C stock pays a yearly
cash dividend. As of December 31, 1997, all stock held was Class B stock.
Thus, included within the above investments are $1,317,231 and $1,128,964
at December 31, 1998 and 1997, respectively, in stock of Rural Telephone
Bank combined Class C and B. Prior to 1985, the refunds were net against
interest expense. The Company was recording the patronage dividends as a
memorandum entry on their books in accordance with a recommendation by the
National Association of Regulatory Utility Commissioners Subcommittee of
Staff Experts on Accounting. The Class C stock received as patronage
refunds is recorded at par, as stated above, with an offsetting credit for
dividends received in a subaccount which is $1,154,425 and $971,998 as of
December 31, 1998 and 1997, respectively. The patronage refunds will be
accounted for as income in the year of redemption for cash.
In addition, Westside Independent Telephone Company, a wholly-owned
subsidiary of Breda Telephone Corporation, has a 33.33% ownership interest
in Quad County Communications. This joint venture has built a fiber optic
network from Odebolt to Denison. Transactions with Quad County
Communications are conducted on the basis of normal commercial
relationships, at prevailing market prices.
F-29
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
5. OTHER INVESTMENTS, (Continued)
The following is condensed financial data for Quad County Communications as
of December 31, 1998:
1998
----
Ordinary Loss $ (47,190)
Interest income 85
Net loss (47,105)
Current assets $ 5,625
Non-current assets 461,729
Current liabilities 11,184
Non-current liabilities 0
6. NONREGULATED INVESTMENTS
Below are the nonregulated investments as of December 31, 1998 and 1997,
and the related explanations of their treatment.
TELEMARKETING PLANT
Listed below are the major classes of the telemarketing plant as of
December 31, 1998 and 1997:
1998 1997
-------- --------
Computer Equipment $223,906 $223,906
Office Furniture and Equipment 8,661 8,661
-------- --------
Telemarketing Equipment 232,567 232,567
Less: Reserve for Depreciation 231,989 231,824
-------- --------
578 743
-------- --------
Telemarketing Building -- 91,664
Less: Reserve for Depreciation -- 22,328
-------- --------
-- 69,336
-------- --------
Telemarketing Land -- 500
-------- --------
Total Telemarketing Plant $ 578 $ 70,579
======== ========
F-30
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
Both the building and land were sold during 1998 for a loss of
approximately $68,500. All of the remaining plant was fully depreciated as
of December 31, 1998, with the exception of an office copy machine which is
being depreciated over ten years. The depreciation provision as a
percentage of the average balance of telemarketing plant in service was
13.9 percent in 1997.
The offering of telemarketing services does not involve the joint or shared
use of assets in the provision of regulated and nonregulated services.
CATV PLANT
Listed below are the major classes of the CATV plant as of December 31,
1998 and 1997:
1998 1997
---------- ----------
Franchise $ 32,992 $ 28,048
Land 8,586 7,586
Buildings 237,557 234,699
Towers and Antennas 244,194 220,005
Electronic Receiving Equipment 1,202,591 1,036,720
Other Head End Equipment 11,691 6,691
Electronic Conductors and Devices 1,341,369 1,272,201
Services 146,988 72,523
Installations on Customer Premises 49,455 27,820
Office Furniture and Equipment 55,093 55,093
Vehicles 126,115 126,115
Tools and Other Work Equipment 26,284 21,348
---------- ----------
CATV Plant 3,482,915 3,108,849
Less: Reserve for Depreciation 1,475,303 1,268,583
---------- ----------
$2,007,612 $1,840,266
========== ==========
F-31
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
The depreciation provision as a percentage of the average balance of CATV
plant in service was 6.3 and 5.2 percent in 1998 and 1997, respectively.
Individual plant depreciation rates range as follows:
Buildings 4.0 - 20.0%
Towers and Antennas 4.0 - 20.0%
Electronic Receiving Equipment 4.0 - 20.0%
Other Head End Equipment 4.0 - 20.0%
Electronic Conductors and Devices 4.0 - 20.0%
Services 4.0 - 20.0%
Installations on Customer Premises 4.0 - 20.0%
Office Furniture and Equipment 10.0%
Vehicles 15.0%
Tools and Other Work Equipment 10.0 - 20.0%
The offering of CATV service does not involve the joint or shared use of
assets in the provision of regulated and nonregulated services.
F-32
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
NONREGULATED LAND AND EQUIPMENT
Listed below are the major classes of nonregulated land and equipment as of
December 31, 1998 and 1997:
1998 1997
-------- --------
Land $ 8,523 $ 8,523
-------- --------
DBS Leased Dishes 319,940 711,590
Less: Reserve for Depreciation 206,197 306,178
-------- --------
113,743 405,412
-------- --------
Nonregulated Customer Premise
Equipment - Leased 387,365 384,569
Less: Reserve for Depreciation 385,107 384,569
-------- --------
2,258 --
-------- --------
Internet Equipment 77,054 34,992
Less: Reserve for Depreciation 14,704 3,499
-------- --------
62,350 31,493
-------- --------
Payphone Equipment 9,482 8,757
Less: Reserve for Depreciation 8,588 8,056
-------- --------
894 701
-------- --------
Paging Equipment 7,022 4,560
Less: Reserve for Depreciation 1,233 700
-------- --------
5,789 3,860
-------- --------
Total Nonregulated Land and Equipment $193,557 $449,989
======== ========
The leasing of nonregulated land and equipment does not involve the joint
or shared use of assets in the provision of regulated and nonregulated
services.
F-33
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
DBS DISTRIBUTION RIGHTS
The Company entered into an agreement with the National Rural
Telecommunications Cooperative ("NRTC") on July 20, 1992. Over the years
1992 through 1994, the Company paid the NRTC total payments of $640,012 for
distribution and marketing rights. The NRTC grants the Company the
exclusive right to market and sell Direct Broadcast Service ("DBS") to all
noncabled residences in the nine Iowa and Nebraska counties of Carroll,
Sac, Greene, Crawford, Fremont, Cass, Otoe, Richardson and Nemaha, as well
as to cabled residences in the Iowa counties of Sac and Fremont and the
Nebraska county of Cass. The DBS services to be marketed and sold consist
of various programming packages. The service commencement date was July
1994. The agreement remains in effect for ten years from the service
commencement date or until the satellite is removed, whichever occurs
earlier. The DBS distribution rights are being amortized on a straight-line
basis over fifteen years in compliance with IRS guidelines. Amortization
expense for both 1998 and 1997 was $42,668. In the event the satellite is
removed prior to the ten year term, the Company shall receive a refund of
its member payment in accordance with the agreement. Distribution rights as
of December 31, 1998 and 1997 consist of the following:
1998 1997
-------- --------
DBS Distribution Rights $640,012 $640,012
Less: Accumulated Amortization 170,670 128,002
-------- --------
$469,342 $512,010
======== ========
NONREGULATED TELEPHONE PLANT
Listed below are the major classes of nonregulated telephone plant as of
December 31, 1998:
1998
--------
Buildings $145,000
Less: Reserve for Depreciation 4,028
--------
140,972
Telephone plant under construction 346,282
--------
$487,254
========
F-34
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
Individual plant depreciation rates for the nonregulated telephone plant
are as follows:
Buildings 3.0%
The nonregulated telephone plant has been engineered and built with the
intentions of providing competitive telecommunication services in the
neighboring community of Carroll. As of December 31, 1998, the plant was
not fully operational and was not yet providing any services.
The offering of nonregulated telephone service does not involve the joint
or shared use of assets in the provision of regulated and nonregulated
services.
BUSINESS START-UP COSTS
During 1998, the Company changed its method of accounting for the reporting
of business start-up costs to conform with new requirements of the
Financial Accounting Standards Board. The start-up costs originally
capitalized by the Company are on the books of BTC, Inc, a wholly-owned
subsidiary of Prairie Telephone Company, Inc. The effect of this change was
to decrease subsidiary net income for 1998 by $49,115. Financial statements
for 1997 have not been restated, and the cumulative effect of the change of
$49,115 is shown as a one-time charge to income on BTC, Inc.'s 1998 income
statement. See footnote number fifteen.
GOODWILL
On June 1, 1998, the Company acquired 100% ownership of Westside
Independent Telephone Company. The total cost of the acquisition exceeded
the fair value of the net assets of Westside Independent Telephone Company
by $1,178,472. This excess was recorded as goodwill and is being amortized
on the straight-line basis over fifteen years. Amortization expense and
accumulated amortization recorded in 1998 was $45,848.
As of June 1, 1998, Tele-Services, Ltd., a wholly-owned subsidiary of Breda
Telephone Corporation, acquired 100% ownership of Westside Communications,
Inc. The total cost of the acquisition exceeded the fair value of the net
assets of Westside Communications, Inc. by $157,611. This excess was
recorded as goodwill and is being amortized on the straight-line basis over
fifteen years. Amortization expense and accumulated amortization recorded
in 1998 was $6,130.
F-35
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
7. DEFERRED MAINTENANCE AND RETIREMENTS
The balance consists of the unamortized portion of the unprovided for loss
in service value of plant retired.
<TABLE>
<CAPTION>
Original Unamortized Balance
Description Date Balance 1998 1997
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C>
Central Office Equipment 1987 $130,380 $ 10,029 $ 20,058
Central Office Equipment 1988 56,884 4,340 9,080
Central Office Equipment 1993 31,428 -- 6,286
Mobile System Equipment 1994 35,107 7,021 14,043
-------- -------- ---------
$253,799 $ 21,390 $ 49,467
======== ======== ========
</TABLE>
The Company is amortizing the losses over five to thirteen years.
Amortization expense was $28,077 for both 1998 and 1997.
F-36
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
8. PROPERTY, PLANT AND EQUIPMENT
Listed below are the major classes of the telephone plant as of December
31, 1998 and 1997:
1998 1997
---------- ----------
Organization $ 803 $ 803
Franchise 3,167 3,167
Land 30,484 20,843
Vehicles 208,692 136,759
Tools and Other Work Equipment 319,708 307,768
Furniture and Office Equipment 144,300 136,558
Computer Equipment 207,665 186,806
Buildings 542,544 482,577
Central Office Equipment 1,981,455 1,774,424
Buried Cable 3,546,900 3,061,536
---------- ----------
Telephone Plant $6,985,718 $6,111,241
========== ==========
The depreciation provision as a percentage of the average balance of
telephone plant in service was 6.7 percent in both 1998 and 1997.
Individual plant depreciation rates range as follows:
Vehicles 15.0 - 25.0%
Tools and Other Work Equipment 10.0 - 20.0%
Furniture and Office Equipment 10.0 - 40.0%
Computer Equipment 20.0%
Buildings 3.0 - 15.0%
Central Office Equipment 10.0 - 25.0%
Buried Cable 5.0 - 15.0%
F-37
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
9. LONG-TERM DEBT
During 1998, the Company refinanced the mortgage notes payable to the Rural
Utilities Service (RUS) and the Rural Telephone Bank (RTB) with new
mortgage notes payable to the Rural Telephone Finance Cooperative (RTFC).
The Company continues to have the original mortgage notes payable to the
RTFC and a building mortgage note with the Tiefenthalers. Following is a
summary of outstanding debt as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Rural Telephone Finance Cooperative
6.40% (Variable Rate) Note due October 28, 2005 $ 459,342 $ 574,200
6.15% (Variable Rate) Note due February 17, 2005 1,172,817 1,343,345
6.10% (Variable Rate) Note due May 26, 2013 1,415,110 --
6.10% (Variable Rate) Note due May 26, 2013 2,313,042 --
7.35% (Fixed Rate) Note due May 26, 2013 2,371,721 --
Building Mortgage Note - Cyril and Ethel
Tiefenthaler
7.00% Note due October 1, 1999 79,382 91,367
Rural Utilities Service
2.00% Note due September 9, 2002 -- 140,118
2.00% Note due May 31, 2004 -- 56,716
2.00% Note due June 10, 2004 -- 66,386
2.00% Note due July 11, 2010 -- 60,394
5.00% Note due July 17, 2010 -- 177,533
5.00% Note due July 28, 2021 -- 771,442
5.00% Note due September 27, 2022 -- 190,695
Rural Telephone Bank --
7.00% Note due December 11, 2013 -- 729,293
8.00% Note due December 21, 2013 -- 123,610
8.50% Note due July 28, 2021 -- 1,040,302
10.75% Note due May 12, 2016 -- 184,108
----------- -----------
7,811,414 5,549,509
Less: Current Maturities (655,072) (423,862)
----------- -----------
$ 7,156,342 $ 5,125,647
=========== ===========
</TABLE>
F-38
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
9. LONG-TERM DEBT, (Continued)
The Breda Telephone Corporation has an outstanding line of credit with the
RTFC for $750,000. The principal and interest, at a rate of 6.7%, are
payable in full on January 28, 1999.
In addition, Prairie Telephone Company, a wholly-owned subsidiary of Breda
Telephone Corporation, received approval on a line of credit from the RTFC
for $250,000. The approved line of credit was available until January 28,
1999 at a rate of 6.7%. The Company had not drawn down any funds as of
December 31, 1998.
All the RTFC loans are repayable in equal quarterly installments covering
principal and interest. The final balloon payment on the building mortgage
note with Cyril and Ethel Tiefenthaler is due on October 1, 1999. Principal
payments due during the years subsequent to December 31, 1998 on notes
outstanding are as follows:
Building
Mortgage
RTFC Note
---------- ----------
1999 $ 575,690 $ 79,382
2000 608,412
2001 643,059
2002 579,166
2003 561,770
Thereafter 4,763,935
F-39
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
10. INCOME TAXES
Income taxes reflected in the comparative statements included the
following:
1998 1997
--------- ---------
Total provision for income taxes:
Estimated Federal income tax $ 562,083 $ 555,951
Estimated State income tax 187,380 162,937
Deferred income taxes (146,224) (22,101)
Amortization of investment tax credits (9,769) (9,769)
--------- ---------
$ 593,470 $ 687,018
========= =========
Which was accounted for as:
Items of Operating Expenses:
Telephone $ 418,277 $ 560,699
Telemarketing 24,893 6,108
CLEC (53,549) (432)
CATV 9,257 (199)
Items of Non-Operating Expense:
Telephone 194,592 120,842
--------- ---------
$ 593,470 $ 687,018
========= =========
The Company has recorded additional deferred taxes of $298,561 relating to
the difference between the financial reporting basis and the tax reporting
basis of the Westside Independent Telephone Company and Westside
Communications, Inc. assets acquired.
Breda Telephone Corporation files a consolidated tax return including their
wholly-owned subsidiaries, Prairie Telephone Company, Inc., Westside
Independent Telephone Company and Tele-Services, Ltd.
F-40
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
11. INCOME FROM NONREGULATED EQUIPMENT AND SERVICES
Nonregulated income includes the following for the years ended December 31,
1998 and 1997:
1998 1997
--------- ---------
Cellular and Mobile Equipment $ 130,403 $ 222,906
Internet Service 18,148 13,587
Inside Wiring (12,162) (13,520)
Customer Premise Equipment (4,736) (4,822)
Payphone Equipment (4,281) 733
Pager Equipment (1,623) (3,249)
--------- ---------
$ 125,749 $ 215,635
========= =========
12. LOSS FROM DBS OPERATIONS
The statements of operations for the DBS segment for the years ended
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
General service $ 1,460,222 $ 1,158,316
Sale of equipment, net (238,770) (39,044)
Uncollectible (32,807) --
Miscellaneous revenue 3,252 8,730
----------- -----------
1,191,897 1,128,002
----------- -----------
OPERATING EXPENSES:
Maintenance 49,807 45,010
Depreciation (Note 16) 130,723 142,127
Amortization (Note 6) 42,668 42,668
Programming costs 973,483 720,329
Advertising 15,263 24,751
Commissions 20,122 21,548
General office salaries and expenses 53,295 109,892
Other general expenses 52,222 40,308
----------- -----------
1,337,583 1,146,633
----------- -----------
NET LOSS $ (145,686) $ (18,631)
=========== ===========
</TABLE>
F-41
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
13. INCOME FROM TELEMARKETING OPERATIONS
The statements of operations for the telemarketing center for the years
ended December 31, 1998 and 1997 are as follows:
1998 1997
-------- --------
OPERATING REVENUES:
Telemarketing sales revenue $581,437 $545,170
Rental income -- 6,000
-------- --------
581,437 551,170
-------- --------
OPERATING EXPENSES:
Maintenance 28,437 25,152
Depreciation (Note 16) 165 32,317
Wages 272,440 248,511
Telephone and utilities 149,183 158,542
Management fees 6,000 6,000
Rent 6,000 6,000
General office salaries and expenses 3,649 6,463
Miscellaneous general expenses 28,061 27,768
General taxes 26,998 25,922
Income taxes (Note 10) 24,893 6,108
-------- --------
545,826 542,783
-------- --------
OPERATING INCOME 35,611 8,387
-------- --------
NON-OPERATING INCOME:
Dividend income 1,569 --
-------- --------
NET INCOME $ 37,180 $ 8,387
======== ========
F-42
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
14. LOSS FROM CLEC OPERATIONS
The statements of operations for BTC, Inc. for the years ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Internet revenues, net $ 47,638 $ 19,649
Uncollectible (1,182) --
-------- --------
46,456 19,649
-------- --------
OPERATING EXPENSES:
Plant specific operations 3,976 --
Facility rent 35,773 15,427
Plant nonspecific operations 49,873 --
Depreciation (Note 16) 15,232 3,499
Amortization -- 1,694
Customer operations 4,272 --
Corporate operations 18,289 95
General taxes 1,749 --
Income taxes (Note 10) (53,549) (432)
-------- --------
75,615 20,283
-------- --------
OPERATING LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (29,159) (634)
-------- --------
Cumulative effect, as of January 1, 1998,
of change in method of accounting for
business start-up costs(Note 6) 49,115 --
-------- --------
NET LOSS $(78,274) $ (634)
======== ========
</TABLE>
F-43
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
15. LOSS FROM CATV OPERATIONS
The statements of operations for the CATV plant for the years ended
December 31, 1998 and 1997 are as follows:
1998 1997
--------- ---------
OPERATING REVENUES:
General service $ 979,985 $ 860,281
Uncollectible (10,294) (5,747)
--------- ---------
969,691 854,534
--------- ---------
OPERATING EXPENSES:
Maintenance 244,426 281,644
Depreciation (Note 16) 205,174 160,454
Amortization 7,676 1,392
Programming costs 240,937 175,201
General office salaries and expenses 139,410 123,509
Other general expenses 38,137 37,687
General taxes 28,254 29,427
Income taxes (Note 10) 9,257 (199)
--------- ---------
913,271 809,115
--------- ---------
OPERATING INCOME 56,420 45,419
--------- ---------
NON-OPERATING INCOME (EXPENSES):
Interest and dividend income 19,966 19,665
Loss on sale of investments (353) --
--------- ---------
19,613 19,665
--------- ---------
NET INCOME BEFORE INTEREST EXPENSE 76,033 65,084
--------- ---------
INTEREST ON LONG-TERM DEBT 91,252 101,824
--------- ---------
NET LOSS $ (15,219) $ (36,740)
========= =========
F-44
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
16. DEPRECIATION
The provision for depreciation for the years ended December 31, 1998 and
1997, was $775,293 and $738,735, respectively, which was distributed as
follows:
1998 1997
-------- --------
Operating Expenses:
Telephone $421,425 $399,044
Telemarketing 165 32,317
CLEC 15,232 3,499
CATV 205,174 160,454
Non-Operating Expenses:
DBS 130,723 142,127
Miscellaneous 2,574 1,294
-------- --------
$775,293 $738,735
======== ========
17. EMPLOYEE BENEFIT PLAN
The Company adopted for its employees who have met certain eligibility
requirements, a Defined Benefit Retirement and Security Program sponsored
by the National Telephone Cooperative Association. The plan calls for the
Company to contribute 8.6% of each enrolled employee's annual gross salary.
As a condition of participation, each participating employee must also
contribute a minimum 3% of their annual gross salary. Contributions made by
the Company totaled $63,045 and $49,756 for the years ended December 31,
1998 and 1997, respectively.
18. EMPLOYMENT CONTRACTS
On January 1, 1995, the Company extended an employment contract with its
General Manager to December 31, 1999. The contract provides for a beginning
salary for the 1995 year of approximately $59,000, plus an adjustment each
subsequent year equal to the previous years salary plus 3 1/2%, plus the
percentage increase as shown by the Consumer Price Index for the previous
year. The contract provides for the payment of an annual bonus at the sole
discretion of the Board of Directors. The General Manager is also entitled
to the same benefits and under the same conditions as are available to
other full-time employees of the Breda Telephone Corporation.
F-45
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
18. EMPLOYMENT CONTRACTS, (Continued)
The employment contract includes additional covenants regarding the
disability or death of the General Manager during the contract period, as
well as a covenant covering the majority change in ownership of the
Company. There is an extension or renewal clause in the contract for
additional periods of one year subsequent to December 31, 1999. The
contract automatically renews unless the Company notifies the General
Manager in writing prior to April 1,1999 of its intention to terminate the
agreement. The agreement is extended for additional periods of one calendar
year.
Additionally, on March 30, 1998, the Company extended an employment
contract with its Chief Financial Officer to March 30, 2000. The contract
provides for a beginning salary for the 1998/1999 year of $55,000. The
contract also provides for a performance and salary review after the first
six months of employment. The Chief Financial Officer is also entitled to
the same benefits and under the same conditions as are available to other
full-time employees of the Breda Telephone Corporation. The employment
contract also includes a covenant regarding the disability of the Chief
Financial Officer during the contract period. There are termination clauses
which allow termination without cause upon a thirty day written notice and
with cause upon a five day written notice. The without cause termination
would provide for the contract to be paid in full.
The aggregate commitment for future salaries at December 31, 1998,
excluding bonuses, was approximately $131,000.
19. MAJOR CUSTOMER
Pacific Junction Telemarketing Center, Inc., wholly-owned subsidiary of
Prairie Telephone Company, Inc., received nearly all of its telemarketing
service revenues from one customer during both 1998 and 1997. For the years
ended December 31, 1998 and 1997, the telemarketing service revenues from
the major customer were $579,836 and $528,700, respectively. At December
31, 1998 and 1997, the amount due from this customer, included in other
accounts receivable on the balance sheet, was $101,676 and $106,671,
respectively.
F-47
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
20. STOCK VALUE ADJUSTMENT
During June of 1998, the Board of Directors authorized an additional $23.00
increase in the stated value of each share of common stock from $41.00 to
$64.00. There were 38,050 shares outstanding at the time of the value
adjustment which reduced retained earnings by $875,150.
The June of 1997 authorized increase was $10.00 and increased the stated
value of each share of common stock from $31.00 to $41.00. There were
39,919 shares outstanding at the time of the value adjustment which reduced
retained earnings by $399,190.
21. STOCK RESTRICTIONS
The Company has one class of common stock. Each stockholder is entitled to
one vote regardless of the number of shares owned. Restrictions on the
stock include the following:
o Individuals purchasing new shares of stock must be living within the
service area of the Company and subscribe to the Company's telephone
services. In addition, new stockholders are limited to purchasing no
more than thirty shares of stock directly from the Company.
o Stockholders are limited to ownership of not more than one percent of
the outstanding shares of stock unless ownership was prior to the
restated Articles of Incorporation.
o Stockholders shall not sell any shares of stock owned unless the
Company has been given first right of refusal.
o In households with multiple individuals, only one person must be
deemed the subscriber of Company services.
o A one-time stock transfer to a family member (spouse, child,
grandchild, parent, grandparent, or sibling) is allowed even if such
transferee resides outside of the telephone exchange service area and
is not a subscriber of the Company's telephone services.
o Stock transfers require the consent of the Board of Directors.
The Company may adopt bylaws which may further restrict the transfer or
ownership of capital stock of the Company.
F-47
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
22. INVESTMENT IN SUBSIDIARIES
Breda Telephone Corporation includes a wholly-owned subsidiary, Prairie
Telephone Company, Inc. The costs in purchasing this subsidiary included
value of consideration given and all direct and incremental costs relating
to its acquisition. The total unamortizable cost is $115,420. The Company
purchased $29,000 of stock.
Prairie Telephone Company, Inc. then formed a wholly-owned subsidiary,
Pacific Junction Telemarketing Center, Inc., for its telemarketing
business. The Company purchased $10,000 of stock and $50,000 has been
contributed as additional paid-in capital. During 1997, Prairie Telephone
Company formed an additional wholly-owned subsidiary, BTC, Inc. This entity
was formed for its competitive local exchange carrier (CLEC) operations.
Prairie Telephone Company purchased $20,000 in stock and during 1998
contributed $600,000 as additional paid-in capital.
Breda Telephone Corporation also includes a wholly-owned subsidiary,
Westside Independent Telephone Company. The Company purchased $2,010,038 of
stock.
Breda Telephone Corporation also formed a wholly-owned subsidiary,
Tele-Services, Ltd., for its community antenna television (CATV) utility
business. The Company purchased $75,000 of stock and $1,124,160 has been
contributed as additional paid-in capital.
23. RELATED PARTY TRANSACTIONS
On September 22, 1975, Breda Telephone Corporation entered into an
agreement for operation and maintenance with its wholly-owned subsidiary,
Prairie Telephone Company, Inc. The agreement was amended effective October
1, 1981, to provide for operation, maintenance and management services
billed at actual cost to cover day to day operational expenses and
maintenance, as well as the income tax implications. As of December 31,
1998 and 1997, Breda Telephone Corporation has accounts receivable from
Prairie Telephone Company, Inc. for $139,188 and $137,545, respectively.
F-48
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
23. RELATED PARTY TRANSACTIONS, (Continued)
Breda Telephone Corporation also has an agreement with its wholly-owned
subsidiary, Tele-Services, Ltd., to provide for the operation and
maintenance of the various CATV systems. The fees paid by Tele-Services,
Ltd. are based on actual costs for the day to day operations and
maintenance, as well as the related income tax implications. As of December
31, 1998 and 1997, Breda Telephone Corporation has recorded an accounts
receivable from Tele-Services, Ltd. of $18,467 and $171,668, respectively.
Breda Telephone Corporation has recorded a payable to Westside Independent
Telephone Company, wholly-owned subsidiary, of $52,592 as of December 31,
1998.
In addition, Breda Telephone Corporation has recorded an accounts
receivable as of December 31, 1998 and 1997 from Pacific Junction
Telemarketing Center, Inc. of $91,705 and $82,562, respectively, and an
accounts receivable from BTC, Inc. of $20,080 and $33,004, respectively.
Both are wholly-owned subsidiaries of Prairie Telephone Company, Inc.
Prairie Telephone Company, Inc. has recorded an accounts receivable as of
December 31, 1998 and 1997 from Pacific Junction Telemarketing Center, Inc.
of $17,639 and $27,493, respectively, and an accounts receivable from BTC,
Inc. of $10,740 and $210, respectively. Pacific Junction Telemarketing
Center, Inc. and BTC, Inc. are wholly-owned subsidiaries of Prairie
Telephone Company.
Tele-Services, Ltd. has accounts payable at December 31, 1997, of $151,810
to Prairie Telephone Company, Inc. Both are wholly-owned subsidiaries of
Breda Telephone Corporation.
F-49
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
24. ACQUISITION
On June 1, 1998, Breda Telephone Corporation acquired Westside Independent
Telephone Company in a business combination accounted for as a purchase.
The Company purchased stock and the purchase price was then allocated to
the respective assets acquired in the transaction based on fair value.
Westside Independent Telephone Company owns and provides the telephone
service in Westside, Iowa. The operations of Westside Independent Telephone
Company are included in the accompanying financial statements since the
date of acquisition. The total cost of the acquisition was $2,010,038,
which exceeded the fair value of the net assets of Westside Independent
Telephone Company by $1,178,472. The excess was recorded as goodwill and is
being amortized on the straight-line basis over fifteen years.
Additionally on June 1, 1998 in a related transaction, Tele-Services, Ltd.,
a wholly-owned subsidiary of Breda Telephone Corporation, acquired Westside
Communications, Inc. in a business combination also accounted for as a
purchase. Tele-Services, Ltd. also purchased stock and the purchase price
was then allocated to the respective assets acquired in the transaction
based on fair value. Westside Communications, Inc. owned and operated the
cable television systems in Westside and Arcadia, Iowa. The operations of
Westside Communications, Inc. are included in the accompanying financial
statements since the date of acquisition, as well. The total cost of the
acquisition was $254,289, which exceeded the fair value of the net assets
of Westside Communications, Inc. by $157,611. The excess was recorded as
goodwill and is being amortized on the straight-line basis over fifteen
years.
The total cost of both acquisitions was $2,264,327 and the total goodwill
recorded was $1,336,083. See footnote number six for additional details
regarding both transactions.
Also on October 31, 1998, Tele-Services, Ltd. purchased the Auburn cable
television system from New Path Communications, L.C. This business
combination was also accounted for as a purchase. The purchase price of
$64,610 was allocated to the respective assets purchased and two months of
operations were recorded as of December 31, 1998.
25. SUBSEQUENT EVENT
On January 11, 1999, the Company sold substantially all of its assets and
liabilities of their Direct Broadcast Satellite (DBS) segment. The Company
received cash of $8,274,689. The transaction resulted in a gain of
$7,436,415, which will be included in operations during the first quarter
of 1999.
F-50
<PAGE>
March 11, 1999
To the Board of Directors
Breda Telephone Corporation
Independent Auditor's Report on Supplementary Information
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information contained on pages F-52 - F-59, as identified in the table of
contents, is presented for purposes of additional analysis and, although not
required for a fair presentation of consolidated financial position, results of
operations and cash flows, was subjected to the auditing procedures applied in
the audits of the basic consolidated financial statements. In our opinion, the
supplementary information is fairly stated in all material respects in relation
to the basic consolidated financial statements taken as a whole.
Anderson and Company
By /s/ J.R. Naig
------------------------
J.R. Naig
F-51
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Prairie
Breda Telephone Westside Tele-
Telephone Company, Telephone Services, Consolidating Consolidated
ASSETS Corporation Inc. Company Ltd. Eliminations Total
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 534,220 $ 148,877 $ 72,319 $ 27,543 $ $ 782,959
Current portion of investments 114,550 114,550
Due from customers 18,844 20,015 4,882 10,504 16,023 70,268
Unbilled access revenue 87,779 54,895 16,411 159,085
Other accounts receivable 258,854 145,321 14,516 1,000 419,691
Other accounts receivable -
affiliate 269,440 52,592 (322,032)
Note receivable 15,983 (15,983)
Interest receivable 5,645 15,810 21,455
Materials and supplies 26,535 18,249 1,264 5,881 51,929
Merchandise held for resale 27,172 1,178 28,350
Deposit 365 365
Prepayments 54,159 6,816 7,923 68,898
----------- ----------- ----------- ----------- ----------- -----------
1,397,198 411,526 177,967 52,851 (321,992) 1,717,550
----------- ----------- ----------- ----------- ----------- -----------
NONCURRENT ASSETS:
Investments, less current portion 617,349 912,696 1,530,045
Other investments 5,974,055 906,397 387,770 161,801 (4,962,001) 2,468,022
Nonregulated investments:
Net telemarketing plant 578 578
Net CATV plant 2,007,612 2,007,612
Net nonregulated land and equipment 128,364 62,350 2,843 193,557
Net DBS distribution rights 469,342 469,342
Net nonregulated telephone plant 487,254 487,254
Net goodwill 1,132,624 151,481 1,284,105
Deferred maintenance and
retirements, net 17,050 4,340 21,390
----------- ----------- ----------- ----------- ----------- -----------
7,206,160 2,373,615 1,523,237 2,320,894 (4,962,001) 8,461,905
----------- ----------- ----------- ----------- ----------- -----------
PROPERTY, PLANT AND
EQUIPMENT:
Telephone Plant 3,959,333 2,391,182 635,203 6,985,718
Less: Reserve for depreciation 2,142,887 1,551,182 64,721 3,758,790
----------- ----------- ----------- ----------- ----------- -----------
1,816,446 840,000 570,482 3,226,928
Acquisition adjustment, net 4,058 4,058
Telephone plant under construction 265,887 265,887
----------- ----------- ----------- ----------- ----------- -----------
1,820,504 1,105,887 570,482 3,496,873
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $10,423,862 $ 3,891,028 $ 2,271,686 $ 2,373,745 $(5,283,993) $13,676,328
=========== =========== =========== =========== =========== ===========
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-52
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Prairie
Breda Telephone Westside Tele-
LIABILITIES AND Telephone Company, Telephone Services, Consolidating Consolidated
STOCKHOLDERS' EQUITY Corporation Inc. Company Ltd. Eliminations Total
------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT AND ACCRUED
LIABILITIES:
Current maturities of long-term debt $ 335,275 $ 61,862 $ $ 257,935 $ $ 655,072
Accounts payable 201,732 191,545 8,788 41,604 443,669
Accounts payable - affiliate 52,592 234,950 18,467 (306,009)
Line of credit 750,000 750,000
Note payable 15,983 (15,983)
Customer deposits 6,073 12,677 320 9,919 28,989
Accrued interest 400 400
Accrued taxes 85,641 53,758 7,548 30,086 177,033
Other current liabilities 75,844 2,356 893 8,816 87,909
------------ ----------- ------------ ------------ ------------- ------------
1,507,157 557,148 17,549 383,210 (321,992) 2,143,072
------------ ----------- ------------ ------------ ------------- ------------
LONG-TERM DEBT:
RTFC notes, less current maturities 4,808,830 1,353,248 994,264 7,156,342
------------ ----------- ------------ ------------ ------------- ------------
DEFERRED CREDITS:
Unamortized investment tax credits 24,952 38,365 63,317
Deferred income taxes (140,523) (114,799) 219,420 241,473 205,571
------------ ----------- ------------ ------------ ------------- ------------
(115,571) (76,434) 219,420 241,473 268,888
------------ ----------- ------------ ------------ ------------- ------------
STOCKHOLDERS' EQUITY:
Common stock 2,414,208 29,000 2,010,038 75,000 (2,114,038) 2,414,208
Additional paid-in capital 1,124,160 (1,124,160)
Retained earnings 1,809,238 2,028,066 24,679 (444,362) (1,723,803) 1,693,818
------------ ----------- ------------ ------------ ------------- ------------
4,223,446 2,057,066 2,034,717 754,798 (4,962,001) 4,108,026
------------ ----------- ------------ ------------ ------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,423,862 $ 3,891,028 $ 2,271,686 $ 2,373,745 $ (5,283,993) $ 13,676,328
============ =========== ============ ============ ============= ============
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-53
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Breda Prairie
Telephone Telephone Tele-Services, Consolidating Consolidated
ASSETS Corporation Company, Inc. Ltd. Eliminations Total
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 324,430 $ 239,592 $ 48,863 $ $ 612,885
Cash - RUS construction fund 6,535 6,535
Current portion of investments 50,555 50,555
Due from customers 99,038 24,799 21,345 (34,993) 110,189
Unbilled access revenue 94,175 54,537 148,712
Other accounts receivable 276,968 177,502 454,470
Other accounts receivable - affiliate 424,780 151,810 (576,590)
Interest receivable 11,042 13,308 1,699 26,049
Materials and supplies 22,261 5,144 3,713 31,118
Merchandise held for resale 57,502 280 57,782
Deposit 5,000 5,000
Prepayments 39,819 7,302 4,080 51,201
-------------- -------------- -------------- -------------- -------------
1,350,015 736,364 79,700 (611,583) 1,554,496
-------------- -------------- -------------- -------------- -------------
NONCURRENT ASSETS:
Investments, less current portion 882,641 745,338 88,986 1,716,965
Other investments 2,558,928 708,886 176,399 (1,792,968) 1,651,245
Nonregulated investments:
Net telemarketing plant 70,579 70,579
Net CATV plant 1,840,266 1,840,266
Net nonregulated land and equipment 418,496 31,493 449,989
Net DBS distribution rights 512,010 512,010
Net business start-up costs 49,115 49,115
Deferred maintenance and retirements, net 34,101 15,366 49,467
Unamortized debt expense, net 833 6,014 6,847
-------------- -------------- -------------- -------------- -------------
4,407,009 1,626,791 2,105,651 (1,792,968) 6,346,483
-------------- -------------- -------------- -------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Telephone plant 3,671,005 2,440,236 6,111,241
Less: Reserve for depreciation 2,524,317 1,515,532 4,039,849
-------------- -------------- -------------- -------------- -------------
1,146,688 924,704 2,071,392
Acquisition adjustment, net 5,566 5,566
-------------- -------------- -------------- -------------- -------------
1,152,254 924,704 2,076,958
-------------- -------------- -------------- -------------- -------------
TOTAL ASSETS $ 6,909,278 $ 3,287,859 $ 2,185,351 $ (2,404,551) $ 9,977,937
============== ============== ============== ============== =============
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-54
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Breda Prairie
LIABILITIES AND STOCKHOLDERS' Telephone Telephone Tele-Services, Consolidating Consolidated
EQUITY Corporation Company, Inc. Ltd. Eliminations Total
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CURRENT AND ACCRUED LIABILITIES:
Current maturities of long-term debt $ 186,032 $ 55,317 $ 182,513 $ $ 423,862
Accounts payable 518,724 136,248 3,813 658,785
Accounts payable - affiliate 288,105 323,478 (611,583)
Note payable 393 393
Customer deposits 6,163 12,357 9,279 27,799
Accrued interest 13,492 13,492
Accrued taxes 266,407 45,587 28,480 340,474
Other current liabilities 60,221 2,619 3,812 66,652
------------- ------------- ------------- ------------ -------------
1,037,547 554,118 551,375 (611,583) 1,531,457
------------- ------------- ------------- ------------ -------------
LONG-TERM DEBT:
RTFC mortgage notes, less current maturities 454,347 1,172,817 1,627,164
RTB mortgage notes, less current maturities 1,025,745 999,918 2,025,663
RUS mortgage notes, less current maturities 1,094,187 299,251 1,393,438
Building mortgage note, less current 79,382 79,382
maturities
------------- ------------- ------------- ------------ -------------
2,574,279 1,299,169 1,252,199 5,125,647
------------- ------------- ------------- ------------ -------------
DEFERRED CREDITS:
Unamortized investment tax credits 29,111 43,975 73,086
Deferred income taxes (68,459) (40,934) 135,760 26,367
------------- ------------- ------------- ------------ -------------
(39,348) 3,041 135,760 99,453
------------- ------------- ------------- ------------ -------------
STOCKHOLDERS' EQUITY:
Common stock 1,555,048 29,000 75,000 (104,000) 1,555,048
Additional paid-in capital 624,160 (624,160)
Retained earnings 1,781,752 1,402,531 (453,143) (1,064,808) 1,666,332
------------- ------------- ------------- ------------ -------------
3,336,800 1,431,531 246,017 (1,792,968) 3,221,380
------------- ------------- ------------- ------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,909,278 $ 3,287,859 $ 2,185,351 $ (2,404,551) $ 9,977,937
============= ============= ============= ============ =============
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-55
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Statement of Income
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Prairie
Breda Telephone Westside Tele-
Telephone Company, Telephone Services, Consolidating Consolidated
Corporation Inc. Company Ltd. Eliminations Total
------------ ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Basic local network services $ 159,389 $ 214,884 $ 23,942 $ $ $ 398,215
Network access services 1,332,521 924,465 208,847 2,465,833
Carrier billing and collection 48,238 45,370 6,962 100,570
Miscellaneous 19,371 2,856 6,677 28,904
Uncollectible 595 3,258 1,392 5,245
------------ ------------ ------------ ----------- ------------ ------------
1,560,114 1,190,833 247,820 2,998,767
------------ ------------ ------------ ----------- ------------ ------------
OPERATING EXPENSES:
Plant specific operations 121,720 81,438 24,765 (24,000) 203,923
Plant nonspecific operations 82,126 20,267 1,152 103,545
Depreciation 208,724 148,299 64,402 421,425
Amortization 18,559 11,026 45,848 75,433
Customer operations 87,697 52,027 10,287 150,011
Corporate operations 338,186 124,374 34,596 497,156
General taxes 28,191 54,442 3,994 86,627
Income taxes 150,629 235,298 32,350 418,277
------------ ------------ ------------ ----------- ------------ ------------
1,035,832 727,171 217,394 (24,000) 1,956,397
------------ ------------ ------------ ----------- ------------ ------------
OPERATING INCOME 524,282 463,662 30,426 24,000 1,042,370
------------ ------------ ------------ ----------- ------------ ------------
NON-OPERATING INCOME
(EXPENSES):
Interest and dividend income 90,335 79,909 10,466 180,710
Gain on sale of investments 5,594 3,259 8,853
Loss on disposal of property (118,443) (118,443)
Loss on extinguishment of debt (47,769) (19,144) (66,913)
Miscellaneous income 13,992 5,660 19,652
Loss from joint venture, net (15,702) (15,702)
Income from cellular partnership 109,973 109,973
Income from cellular settlements 409,212 409,212
Income from nonregulated 119,276 9,267 (2,794) 125,749
equipment and services, net
Loss from DBS operations, net (145,686) (145,686)
Income from telemarketing
operations, net 37,180 37,180
Loss from CLEC operations, net (78,274) (78,274)
Loss from CATV operations, net 8,781 (24,000) (15,219)
Income taxes (22,301) (175,508) 3,217 (194,592)
------------ ------------ ------------ ----------- ------------ ------------
$ 13,441 $ 263,091 $ (4,813) $ 8,781 $ (24,000) $ 256,500
------------ ------------ ------------ ----------- ------------ ------------
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-56
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Statement of Income
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Prairie
Breda Telephone Westside Tele-
Telephone Company, Telephone Services, Consolidating Consolidated
Corporation Inc. Company Ltd. Eliminations Total
------------ ------------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME BEFORE INTEREST
EXPENSE $ 537,723 $ 726,753 $ 25,613 $ 8,781 $ $ 1,298,870
------------ ------------ ---------- ------------ ----------- -----------
INTEREST EXPENSE:
Interest on long-term debt 293,249 95,204 934 389,387
Amortization of debt expense 833 6,014 6,847
------------ ------------ ---------- ------------ ----------- -----------
294,082 101,218 934 396,234
------------ ------------ ---------- ------------ ----------- -----------
NET INCOME $ 243,641 $ 625,535 $ 24,679 $ 8,781 $ $ 902,636
============ ============ ========== ============ =========== ===========
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-57
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Statement of Income
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Breda Prairie
Telephone Telephone Tele-Services, Consolidating Consolidated
Corporation Company, Inc. Ltd. Eliminations Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Basic local network services $ 151,416 $ 195,055 $ $ $ 346,471
Network access services 1,322,867 981,915 2,304,782
Carrier billing and collection 61,598 101,999 163,597
Miscellaneous 29,739 1,007 30,746
Uncollectible 2,782 (138) 2,644
------------- ------------- ------------- ------------- -------------
1,568,402 1,279,838 2,848,240
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Plant specific operations 64,520 66,183 (24,000) 106,703
Plant nonspecific operations 41,415 21,697 63,112
Depreciation 222,081 176,963 399,044
Amortization 18,559 11,026 29,585
Customer operations 119,388 79,367 198,755
Corporate operations 153,608 97,163 250,771
General taxes 24,375 42,128 66,503
Income taxes 284,188 276,511 560,699
928,134 771,038 (24,000) 1,675,172
------------- ------------- ------------- ------------- -------------
OPERATING INCOME 640,268 508,800 24,000 1,173,068
------------- ------------- ------------- ------------- -------------
NON-OPERATING INCOME (EXPENSES):
Interest and dividend income 51,224 38,624 89,848
Miscellaneous income 2,020 4,646 6,666
Income from cellular partnership 74,065 74,065
Income from nonregulated equipment 202,235 13,400 215,635
services, net
Loss from DBS operations, net (18,631) (18,631)
Income from telemarketing operations, net 8,387 8,387
Loss from CLEC operations, net (634) (634)
Loss from CATV operations, net (12,740) (24,000) (36,740)
Income taxes (73,875) (46,967) (120,842)
------------- ------------- ------------- ------------- -------------
$ 162,973 $ 91,521 $ (12,740) $ (24,000) $ 217,754
============= ============= ============= ============= =============
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-58
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidating Statement of Income
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Breda Prairie
Telephone Telephone Tele-Services, Consolidating Consolidated
Corporation Company, Inc. Ltd. Eliminations Total
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE INTEREST
EXPENSE $ 803,241 $ 600,321 $ (12,740) $ $ 1,390,822
-------------- -------------- ------------- ------------ --------------
INTEREST EXPENSE:
Interest on long-term debt 184,044 94,304 278,348
Amortization of debt expense 4,281 275 4,556
-------------- -------------- ------------- ------------ --------------
188,325 94,579 282,904
-------------- -------------- ------------- ------------ --------------
NET INCOME (LOSS) $ 614,916 $ 505,742 $ (12,740) $ $ 1,107,918
============== ============== ============= ============ ==============
</TABLE>
See Independent Auditor's Report on Supplementary Information.
F-59
<PAGE>
PART III
Index to Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<S> <C> <C>
2.1 Stock Purchase Agreement dated May 22, 1998, by E-1
and between Arthur Zerwas and Mary Zerwas, Westside
Independent Telephone Company, and Breda Telephone
Corporation, along with the Amendment to the Stock
Purchase Agreement dated May 22, 1998. Exhibits A and B to
the Stock Purchase Agreement are not included with this
filing. Exhibit A lists the names and locations of all
banks in which Westside Independent Telephone Company had
accounts and the names of all persons authorized to draw
thereon, and Exhibit B sets forth the covenants not to
compete required to be executed by Arthur Zerwas and Mary
Zerwas.
2.2 Stock Purchase Agreement dated May 22, 1998, by and E-12
between Arthur Zerwas and Mary Zerwas, and Breda
Tele-Services, Ltd., along with the Amendment to the Stock
Purchase Agreement dated May 22, 1998. Exhibits A
and B to the Stock Purchase Agreement are not included with
this filing. Exhibit A lists the names and locations of all banks
in which Westside Communications, Inc. had accounts and
the names of all persons authorized to draw thereon, and
Exhibit B sets forth the covenants not to compete required to
be executed by Arthur Zerwas and Mary Zerwas.
2.3 Asset Purchase Agreement dated October 6, 1998, by E-22
and between NewPath Communications, L.C. and
Tele-Services, Ltd. The following schedules to the Asset
Purchase Agreement are not included with this filing.
o Schedule 1 - Franchise from the City of Auburn, Iowa.
o Schedule 2 - List of Real and Personal Property (None).
o Schedule 3 - List of Contracts (None, except for Headend
Lease).
o Schedule 4 - Subscriber and Customer List.
o Schedule 5 - Complimentary Services (Same as Schedule 4).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
o Schedule 6 - List of Subscriber Rates.
o Schedule 7 - List of Television Broadcast Signals and
Programming.
2.4 Asset Purchase Agreement by and between Golden Sky E-36
Systems, Inc. and Breda Telephone Corporation dated
as of November 30, 1998, along with the Amendment
of Asset Purchase Agreement dated as of January 11,
1999. The following exhibits and schedules to the Asset
Purchase Agreement are not included with this filing:
o Schedule 1.4 - Business
o Schedule 1.9 - Equipment
o Schedule 1.13 - Inventory
o Schedule 1.21 - Seller Contracts
o Schedule 3.5 - Allocation of Consideration
o Schedule 4.2 - Excluded Assets
o Schedule 5.4 - Required Consents
o Schedule 5.5 - Encumbrances
o Schedule 5.9 - Patents, Trademarks and Copyrights
o Schedule 5.10 - Financial Statements
o Schedule 5.11 - Legal Proceedings
o Exhibit A - Earnest Money Escrow Agreement
o Exhibit B - Indemnity Escrow Agreement
o Exhibit C - Bill of Sale
o Exhibit D - Assignment and Assumption of Contracts
Agreement
o Exhibit E - Assignment and Assumption of Equipment
Rental Agreements
o Exhibit F-1 - Seller Non-Competition Agreement
o Exhibit F-2 - Buyer Non-Competition Agreement
o Exhibit G - Opinion Letter of Seller's Counsel
3.1 Amended and Restated Articles of Incorporation of Breda E-69
Telephone Corp.
3.2 Amended and Restated Bylaws of Breda Telephone Corp. E-77
10.1 Employment Contract between Breda and Robert Boeckman E-92
10.2 Employment Agreement between Breda and Jane Morlok E-95
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
21 List of Subsidiaries E-99
27 Financial Data Schedule E-100
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 28, 1999
BREDA TELEPHONE CORP.
By: /s/ Dean Schettler
---------------------------
Dean Schettler, President
EXHIBIT 2.1
AMENDMENT TO STOCK PURCHASE AGREEMENT dated May 22, 1998, by and between
Arthur Zerwas and Mary Zerwas, being the sole shareholders of Westside
Independent Telephone Company, Sellers, Westside Independent Telephone Company
(the "Company") and Breda Telephone Corporation, Buyer (the "Stock Purchase
Agreement").
WITNESSETH:
Pursuant to Section 1.06 of the Stock Purchase Agreement, the parties
hereby agree as follows:
1. The Total Stockholders' Equity as shown on the Trial Balance is greater
than the Total Stockholders' Equity on the Financial Statement. The amount of
such increase is $34,593.
2. The Adjusted Price to be paid for each share of stock of the Company to
be purchase or redeemed pursuant to the Stock Purchase Agreement is equal to
$56,751.38 + [$34,593 / 51] or $57,429.67.
IN WITNESS WHEREOF, the parties have executed this Amendment as of June 1,
1998.
Breda Telephone Corporation /s/ Arthur Zerwas
------------------------------
Arthur Zerwas
By: /s/ Dean Schettler /s/ Mary Zerwas
-------------------------------- ------------------------------
Dean Schettler, President Mary Zerwas
Westside Independent Telephone Company
By: /s/ Arthur Zerwas
--------------------------------
Arthur Zerwas, President
E-1
<PAGE>
STOCK PURCHASE AGREEMENT dated May 22, 1998, by and between Arthur Zerwas
and Mary Zerwas, being the sole shareholders of Westside Independent Telephone
Company, Sellers, Westside Independent Telephone Company (the "Company") and
Breda Telephone Corporation, Buyer.
WHEREAS Sellers are the sole shareholders of the Company; and
WHEREAS Sellers desire to completely terminate their ownership interest in
the Company; and
WHEREAS Sellers, Buyer and the Company have agreed that, as part of a
single, integrated plan to effect the complete termination of Sellers' ownership
interest in the Company, Buyer will purchase certain of Sellers' shares in the
Company and Company will redeem the remainder of Sellers' shares, all as
provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties hereby agree as follows:
ARTICLE 1 - SALE OF THE SHARES
1.01 Ownership of shares. Sellers are the owners of all of the issued and
outstanding capital stock of the Company, being 51 shares of the $100 par common
stock of the Company (the "Shares").
1.02 Purchase and redemption price. The price to be paid to Sellers for the
shares, whether by sale or redemption shall be $56,751.38 per share, adjusted as
provided for in Section 1.06 (the "Adjusted Price").
1.03 Redemption of Shares by the Company. As soon after the execution of
this Agreement as practicable, the Company shall sell all of its outstanding
securities. The net proceeds from such liquidation shall be used to redeem a
portion of the Shares (the "Redemption Amount"). The Redemption Amount shall be
determined in accordance with the following formula:
Redemption Amount = Net Proceeds from liquidation of securities / the Adjusted
Price
1.04 Purchase of Shares by the Buyer. All of the Shares not redeemed by the
Company shall be purchased by the Buyer for the Adjusted Price per share.
1.05 Shares to be free and clear of liens. The Shares shall be sold and
redeemed subject to the terms and conditions of this Agreement. Sale and
redemption shall take place at the of closing provided for in Section 1.07 (the
"Closing"). At the Closing, Sellers will sell, assign and deliver to Buyer and
to the Company, as their interests shall appear, all of the Shares, free and
clear of all liens, charges and encumbrances of whatsoever nature.
E-2
<PAGE>
1.06 Adjustment to Purchase Price. As soon after April 30, 1998, as
practicable, the accounting firm of Anderson and Company shall prepare an
adjusted trial balance for the Company for the period ending April 30, 1998 (the
"Trial Balance"). The Trial Balance shall be prepared at Buyer's expense. The
Trial Balance shall be prepared in accordance with Generally Accepted Accounting
Principles, consistently applied, and, upon its completion, shall be submitted
to the Sellers' accounting firm, Williams & Company, C.P.A., P.C., for review.
The amount of Total Stockholders' Equity as shown on the Trial Balance shall be
compared to the amount of Total Stockholders' Equity as shown on the audited
financial statement for the Company for the period ending December 31, 1997 (the
"Financial Statement"). The Adjusted Price shall be determined as follows:
1.06(a) Increase in Total Stockholders' Equity. If the Total Stockholders'
Equity as shown on the Trial Balance is greater than the Total Stockholders'
Equity on the Financial Statement, then the Adjusted Price shall be determined
in accordance with the following formula:
Adjusted Price = $56,751.38 + [Increase in Total Stockholders' Equity / 51]
1.06(b) Decrease in Total Stockholders' Equity. If the Total Stockholders'
Equity as shown on the Trial Balance is less than the Total Stockholders' Equity
on the Financial Statement, then the Adjusted Price shall be determined in
accordance with the following formula:
Adjusted Price = $56,751.38 - [Decrease in Total Stockholders' Equity / 51]
1.07 Closing. The Closing of the transactions provided for in this Article
I will take place at the offices of Williams & Company, C.P.A., P.C., 814 Pierce
Street, Sioux City, Iowa, at 10:00 a.m. on June 1, 1998 or at such other place
or date as the parties shall agree.
1.07(a) Delivery of Shares. At the Closing, Sellers will deliver to Buyer
certificates representing the Shares to be purchased by Buyer and will deliver
to the Company certificates representing the Shares to be redeemed by the
Company. If there is a fractional share to be redeemed or purchased, Sellers may
deliver certificates representing all 51 shares to Buyer and Company, endorsed
in blank, and Buyer and the Company shall cause new shares to be issued as their
interests shall appear. In addition to the Shares, Sellers shall deliver to
Buyer and the Company all other items required to be delivered to them at or
prior to the Closing pursuant to the terms of this Agreement.
1.07(b) Payment of Purchase Price. At the Closing, Buyer and the Company
will pay the purchase price for the Shares in cash or equivalent or will deliver
to Sellers satisfactory evidence of wire transfer of the purchase price in
conformance with the Sellers' instructions and all other items required to be
delivered to the Sellers at or prior to Closing pursuant to the terms of this
Agreement.
E-3
<PAGE>
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, hereby represent and warrant to Buyer
as follows:
2.01 Organization, capitalization, etc. of the Company.
2.01(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Iowa. The Company has the
corporate power and authority to carry on its businesses as presently conducted.
2.01(b)(i) The authorized capital stock of the Company consists of 300
shares of $100 par Special Common Stock, of which no shares are issued and
outstanding, and 200 shares of $100 par Common Stock, of which only 51 shares
are issued and outstanding. No additional capital stock of the Company will be
authorized or issued before the Closing.
(ii) The Sellers, together, own all 51 shares of the issued and
outstanding $100 par Common Stock, free and clear of all liens, claims,
options, charges or encumbrances of whatsoever nature.
(iii) There are no outstanding options, pledges, hypothecations or
other agreements of any nature whatsoever relating to the issuance of any
shares of capital stock of Company.
2.02 No violation, etc. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby does not and will not
violate any provision of any agreement or violate or conflict with any other
restrictions of any kind or character to which Company or either of the Sellers
are a party or by which any of them is bound. The Sellers have the unqualified
right to sell, assign and deliver the Shares to the Buyer, and the unqualified
right upon consummation of the transactions contemplated by this Agreement, to
pass to the Buyer good and valid title to the Shares, free and clear of all
liens, claims, options, charges or encumbrances of whatsoever nature.
2.03 Financial Statement. The Company has delivered the Financial Statement
to Buyer. The Financial Statement fairly presents the financial condition and
assets and liabilities (whether accrued, absolute, contingent or otherwise) of
the Company as of the Statement Date in accordance with Generally Accepted
Accounting Principles and Generally Accepted Auditing Standards consistently
applied.
2.04 Liabilities and obligations. Except for transactions entered into in
the ordinary course of business of the Company, the Company has no material
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise and whether due or to become due that are not reflected in the
Financial Statement or that have not otherwise been disclosed to Buyer.
Furthermore, the Sellers do not know or have any reasonable ground to know of
any basis for the assertion against
E-4
<PAGE>
the Company of any liability or obligation of any nature or in any amount not
disclosed to Buyer.
2.05 Absence of certain changes. Since the Statement Date and except as
reflected in the Trial Balance, the Company has not:
2.05(a) Suffered any material adverse change in its financial condition,
assets, liabilities or business.
2.05(b) Incurred any obligation or liability (whether absolute, accrued or
contingent) other than in the ordinary course of its business and consistent
with past practice.
2.05(c) Permitted or allowed any of its assets, tangible or intangible, to
be mortgaged, pledged or subjected to any liens or encumbrances.
2.05(d) Canceled any debts or claims or waived any rights of substantial
value or sold or transferred any of its assets except in the ordinary course of
business and consistent with past practice.
2.05(e) Made any capital expenditures or commitments in excess of an
aggregate of $5,000 for additions to property, plant or equipment.
2.05(f) Declared, paid or set aside for payment to its stockholders any
dividend or other distribution in respect of its capital stock or redeemed or
purchased or otherwise acquired any of its capital stock or any options relating
thereto or agreed to take any such action.
2.05(g) Made any material change in any method of accounting or accounting
practice.
2.05(h) Transferred any portion of the Shares.
2.05(i) Declared a bonus, entered into any employment contracts or
increased the salary or benefits to any of the employees.
2.06 Tax returns. The Company has duly filed all tax reports and returns
required to be filed by it and has duly paid all taxes and other charges due or
claimed to be due from it by federal and state taxing authorities. Except as
reflected in the Financial Statement and the Trial Balance, there are no pending
questions relating to, or claims asserted for, taxes or assessments against the
Company.
E-5
<PAGE>
2.07. Title to properties, encumbrances. The Company has good and
marketable title to all of its properties and assets, real and personal,
tangible and intangible, and such properties and assets are subject to no
mortgage, pledge, lien, conditional sale agreement, encumbrance or charge of
whatsoever nature not reflected in the Financial Statement or the Trial Balance.
2.08 Plant and equipment. To the best of the Seller's knowledge and belief,
the plant, structures and equipment of the Company are in good operating
condition and repair, provided, however, that the Sellers make no warranty
concerning such plant, structures and equipment beyond the face hereof. Buyer
expressly represents and warrants to the Sellers that it has inspected the
plant, structures and equipment to its complete satisfaction and is relying on
the results of such inspection and not on any representation or warranty of
Sellers in consummating the transactions contemplated by this Agreement.
2.09. Litigation. There are no actions, proceedings, or investigations
pending, or to the knowledge of the Sellers threatened, against the Company, nor
do the Sellers know or have any reasonable ground to know of any basis for any
such action, proceeding or investigation.
2.10 Insurance. All policies of casualty and property damage, liability,
workers' compensation and other forms of insurance in effect with respect to the
Company are, and will be as of the Closing and for at least 30 days thereafter,
valid, outstanding and enforceable policies.
2.11 Bank accounts. Exhibit A sets forth the names and locations of all
banks in which the Company has accounts and the names of all persons authorized
to draw thereon.
2.12 Representations and warranties. No representation or warranty by the
Sellers in this Agreement contains or will contain any untrue statement or omits
or will omit to state a material fact necessary to make the statements contained
therein not misleading. All representations and warranties made by the Sellers
in this Agreement shall be true and correct as of Closing with the same force
and effect as if they had been made on and as of such date.
2.13 Contracts. The Company has no contract or commitment extending beyond
June 1, 1998 or involving payment by the Company, except as follows: Quad County
Communications Agreement. True and correct copies of the foregoing have been
delivered to the Buyer and the Company has complied with all the provisions of
such instruments and of all the contracts and commitments to which it is a party
and is not in default under any of them.
2.14. Conduct of business. Sellers covenant that pending the Closing:
2.14(a) The Company's business will be conducted only in the ordinary
course.
2.14(b) No change will be made to the Company's authorized or issued
corporate shares.
E-6
<PAGE>
2.14(c) No dividend or other distribution or payment will be declared or
made in respect to the Company's corporate shares.
2.14(d) No increase will be made in the compensation payable or to become
payable to any of the Company's employees, officers or directors.
2.14(e) No Contract or commitment will be entered into by or on behalf of
the company extending beyond June 1, 1998.
2.14(f) Sellers will cause the Company to use its best efforts to preserve
the Company's business organization intact, to preserve for the Company the good
will of its suppliers, customers and others having business relationships with
the Company.
2.14(g) All debts will be paid as they become due.
ARTICLE III - REPRESENTATIONS AND WARRANTIES BY THE BUYER
Buyer represents and warrants to the Sellers as follows:
3.01 Corporate organization. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Iowa and has full
power and authority to carry on its current business and to own, use, and
purchase its assets and properties, including the Shares.
3.02 Corporate authority. Buyer's Board of Directors has duly authorized
the execution and delivery of this Agreement to the Sellers and the carrying out
of its provisions. At Closing, Buyer shall furnish Seller duly certified copies
of such resolutions.
3.03 Binding nature. This Agreement shall, when duly executed and
delivered, be a legal and binding obligation of Buyer, enforceable in accordance
with its terms.
3.04 Representations and warranties. No representation or warranty by Buyer
in this Agreement contains or will contain any untrue statement or omits or will
omit to state a material fact necessary to make the statements contained therein
not misleading. All representations and warranties made by Buyer in this
Agreement shall be true and correct as of Closing with the same force and effect
as if they had been made on and as of such date.
3.05 Inspection and value. Buyer has formed its own opinion as to the value
of the Shares. The parties agree that the Sellers' warranties include only the
express written warranties that are contained in this Agreement. No other
express warranty, oral or written, not contained in this Agreement is of any
force and effect. The parties acknowledge that Buyer has or will have prior to
Closing inspected the assets and records of the Company to the full extent of
Buyer's desire, and that the Sellers have given Buyer ample opportunity to
conduct such inspection.
E-7
<PAGE>
3.06 No litigation. No actions or proceedings are pending or, to Buyer's
best knowledge, threatened before any court, administrative authority or other
authority that might materially or adversely affect Buyer's ability or right to
perform all of its obligations hereunder.
ARTICLE IV - CONDITIONS
4.01 Conditions to Buyer's obligations. All the obligations of Buyer under
this Agreement are subject to the fulfillment, at or before the Closing, of each
of the following conditions:
4.01(a) Representations and warranties. The representations and warranties
made by the Sellers in this Agreement shall be true when made, and true at and
as of the date of the Closing as though such representations and warranties were
made at and as of such date, except for changes arising in the ordinary course
of business, the aggregate cumulative effect of which on the financial condition
and results of operations of the Company is not materially adverse.
4.01(b) Performance. The Sellers shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with at or before the Closing.
4.01(c) Delivery of documents. The Sellers shall have delivered to Buyer
(i) their duly executed resignations from all directorships, officerships and
positions of employment with the Company and (ii) duly executed covenants not to
compete in the form of Exhibit B.
4.02 Conditions to Sellers' obligations. All obligations of the Sellers
under this Agreement are subject to the fulfillment, at or before the Closing,
of each of the following conditions:
4.02(a) Representations and warranties. The representations and warranties
made by the Buyer in this Agreement shall be true when made, and true at and as
of the date of the Closing as though such representations and warranties were
made at and as of such date.
4.02(b) Performance. Buyer shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to so be
performed or complied with at or before the Closing.
4.02(c) Payment. Buyer shall have paid the consideration called for by
Section 1.02 of this Agreement.
ARTICLE V - SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION
5.01 Survival of representations. All representations, warranties and
agreements made by any party in this Agreement or pursuant hereto shall survive
the Closing hereunder and any investigation at any time made by or on behalf of
the other parties.
E-8
<PAGE>
5.02 Sellers' agreement to indemnify. Sellers hereby jointly and severally
agree to indemnify Buyer from and against any tax liability imposed by any
taxing authority on account of the operations of the Company before closing
except to the extent any such tax liability is reflected in the Trial Balance.
The duty to indemnify shall include the obligation to reimburse the Buyer for
costs and reasonable expenses incurred in defending any such claim, including,
without limitation, interest, penalties and reasonable attorneys' fees and
expenses. If any such claim is made against the Buyer for both pre-Closing and
post-Closing tax liability, however, the obligation of the Sellers to indemnify
and to reimburse shall be only for their pro rata share of the total tax
liability and for their pro rata share of costs and reasonable expenses. As used
in this Section, the term pro rata shall mean the percentage of the total claim
made against the Buyer that is for post-Closing tax liabilities.
5.03 Buyer's agreement to indemnify. Buyer hereby agrees to indemnify the
Sellers from and against any tax liability imposed by any taxing authority
because of the operations of the Company after closing. The duty to indemnify
shall include the obligation to reimburse the Sellers for costs and reasonable
expenses incurred in defending any such claim, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses. If any such
claim is made against the Sellers for both pre-Closing and post-Closing tax
liability, however, the obligation of the Buyer to indemnify and to reimburse
shall be only for its pro rata share of the total tax liability and for its pro
rata share of costs and reasonable expenses. As used in this Section, the term
pro rata shall mean the percentage of the total claim made against the Sellers
that is for post-Closing tax liabilities.
5.04 Notice and tender of defense. It shall be a condition precedent to the
duty of either the Sellers or the Buyer to indemnify the other that the party
seeking indemnification shall give written notice to the other party of any
claim for which indemnification is sought not more than 15 days after the party
seeking indemnification receives notice thereof, that the party seeking
indemnification tender the defense of such claim to the other party and that the
other party reject such tender.
5.05. Reduction for tax benefits. The liability of any party for an
indemnification claim shall be limited to the net cost of such claim to the
indemnified party after taking account of any tax benefits resulting from
payment of the claim.
5.06 Remedies cumulative. Except as herein expressly provided, the remedies
provided in this Agreement shall be cumulative and shall not preclude the
assertion by any party of any other rights or the seeking of any other remedies
by it against any other party.
ARTICLE VI - MISCELLANEOUS
6.01 Health insurance. Buyer shall employ the Sellers at such salary and
for such period of time as shall be necessary for the Sellers to qualify for and
become insured under the group health insurance plan currently maintained by
Buyer with the National Telephone Cooperative Association. The Sellers shall pay
any premiums charged for such insurance and shall promptly reimburse Buyer
E-9
<PAGE>
for any expense incurred by Buyer in the performance of its obligations under
this section.
6.02 Commissions. Each of the parties hereto represents and warrants that
there are no claims for brokerage commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
6.03 Parties in interest. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the respective heirs, beneficiaries, representatives, successors and assigns of
the parties hereto. In case of any assignment, the assignor shall remain liable.
6.04 Entire agreement, amendments. This Agreement contains the entire
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties, covenants or
undertakings other than those expressly set forth. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties hereto or their respective successors or assigns. Any
condition to a party's obligations hereunder may be waived by such party.
6.05 Headings. The article, and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.06 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, certified mail, postage prepaid, to the parties at the
following addresses, or at such other addresses as the parties may designate in
writing from time to time hereafter.
If to Buyer: Breda Telephone Corporation
P.O. Box 190
Breda, IA 51436-0190
Attention: Bob Boeckman, General Manager
with a copy to: Thomas W. Polking
Attorney at Law
200 Lincoln Building
Jefferson, IA 50129
If to Sellers: Art and Mary Zerwas
313 North M-64 County Road
Westside, IA 51467
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with a copy to: A.J. Stoik
Attorney at Law
P.O. Box 327
Sioux City, IA 51102
6.07 Law governing. This Agreement shall be governed by, construed and
enforced in accordance with the substantive laws of the State of Iowa.
6.08 Counterparts. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been duly executed as of the date
first above written.
Breda Telephone Corporation /s/ Arthur Zerwas
------------------------------
Arthur Zerwas
By: /s/ Dean Schettler /s/ Mary Zerwas
----------------------------- --------------------------------
Dean Schettler, President Mary Zerwas
Westside Independent Telephone Company
By: /s/ Arthur Zerwas
-----------------------------
Arthur Zerwas, President
E-11
EXHIBIT 2.2
AMENDMENT TO STOCK PURCHASE AGREEMENT dated May 22, 1998, by and between
Arthur Zerwas and Mary Zerwas, being the sole shareholders of Westside
Communications, Inc. (the "Company"), Sellers, and Breda Tele-Services, Ltd.,
Buyer (the "Stock Purchase Agreement").
WITNESSETH:
Pursuant to Section 1.02 of the Stock Purchase Agreement, the parties
hereby agree as follows:
1. The Total Stockholders' Equity as shown on the Trial Balance is greater
than the Total Stockholders' Equity on the Financial Statement. The amount of
such increase is $2,609.00.
2. The Purchase Price to be paid for Sellers' stock of the Company is
$254,289.00.
IN WITNESS WHEREOF, the parties have executed this Amendment as of June 1,
1998.
Breda Tele-Services, Ltd. /s/ Arthur Zerwas
-----------------------------------
Arthur Zerwas
By: /s/ Dean Schettler /s/ Mary Zerwas
-------------------------------- -----------------------------------
Dean Schettler, President Mary Zerwas
E-12
<PAGE>
STOCK PURCHASE AGREEMENT dated May 22, 1998, by and between Arthur Zerwas
and Mary Zerwas, being the sole shareholders of Westside Communications, Inc.
(the "Company"), Sellers, and Breda Tele-Services, Ltd., Buyer.
WHEREAS Sellers desire to sell and Buyer desires to purchase all the
capital stock of Sellers in the Company, subject to the terms and conditions of
this Stock Purchase Agreement (the "Agreement"); and
WHEREAS the parties wish to reduce their agreement to writing;
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties hereby agree as follows:
ARTICLE I--SALE OF THE SHARES
1.01. Shares being sold. Subject to the terms and conditions of this
Agreement, at the closing provided for in Section 1.03 hereof (the "Closing"),
Sellers will sell, assign and deliver to Buyer and Buyer will purchase from
Sellers, free and clear of all liens, charges and encumbrances of whatsoever
nature, all of seller's shares of stock, which consist of 2,000 shares of the
$1.00 par common stock of the Company (the "Shares").
1.02. Consideration. In consideration of the aforesaid sale, assignment and
delivery of the Shares, and subject to the adjustments provided for in this
Agreement, Buyer will pay to Sellers at the Closing the sum of $251,680.00 (the
"Purchase Price"). Payment shall be by wire transfer, as Sellers shall direct.
1.02(a). Adjustment to Purchase Price. As soon after April 30, 1998, as
practicable, the accounting firm of Anderson and Company shall prepare an
adjusted trial balance for the Company for the period ending April 30, 1998 (the
"Trial Balance"). The Trial Balance shall be prepared at Buyer's expense. The
Trial Balance shall be prepared in accordance with Generally Accepted Accounting
Principles, consistently applied, and, upon its completion, shall be submitted
to the Sellers' accounting firm, Williams & Company, C.P.A., P.C., for review.
The amount of Total Stockholders' Equity as shown on the Trial Balance shall be
compared to the amount of Total Stockholders' Equity as shown on the audited
financial statement for the Company for the period ending December 31, 1997 (the
"Financial Statement"). The Purchase Price shall be increased or decreased by
the amount by which the Total Stockholders' Equity as shown in the Trial Balance
is greater than or less than the Total Stockholders' Equity as shown in the
Financial Statement.
1.02(b). Payment of the Stockholders' Note. The Financial Statement shows a
Note Payable-Stockholders in the amount of $41,600. The Buyer agrees that the
Sellers may cause the Company to pay this note before the Closing and that the
amount of Total Stockholders' Equity as
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shown in the Trial Balance shall be computed without regard to any such
payments.
1.03. Closing. The Closing of the transactions provided for in this Article
I will take place at the offices of Williams & Company, C.P.A., P.C., 814 Pierce
Street, Sioux City, Iowa, at 10:00 a.m..on June 1, 1998 or at such other place
or date as the parties shall agree.
1.03(a). Delivery of Shares. At the Closing, Sellers will deliver to Buyer
certificates representing the Shares, issued in the name of Buyer or endorsed in
blank, and all other items required to be delivered to the Buyer at or prior to
the Closing pursuant to the terms of this Agreement.
1.03(b). Payment of Purchase Price. At the Closing, Buyer will deliver to
Sellers satisfactory evidence of wire transfer of the Purchase Price in
conformance with the Sellers' instructions and all other items required to be
delivered to the Sellers at or prior to Closing pursuant to the terms of this
Agreement.
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, hereby represent and warrant to Buyer
as follows:
2.01. Organization, capitalization, etc. of the Company.
2.01(a). The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Iowa. The Company has the
corporate power and authority to carry on its businesses as presently conducted.
2.01(b)(i). The authorized capital stock of the Company consists of 2,000
shares of $1.00 par Common Stock, of which 2,000 shares are issued and
outstanding. No additional capital stock of the Company will be authorized or
issued before the Closing.
(ii) The Sellers, together, own all 2,000 shares of the issued and
outstanding $1.00 par Common Stock, free and clear of all liens, claims,
options, charges or encumbrances of whatsoever nature.
(iii) There are no outstanding options, pledges, hypothecations or
other agreements of any nature whatsoever relating to the issuance of any
shares of capital stock of the Company.
2.02. No violation, etc. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby does not and will not
violate any provision of any agreement or violate or conflict with any other
restrictions of any kind or character to which Company or either of the Sellers
are a party or by which any of them is bound. The Sellers have the unqualified
right to sell, assign and deliver the Shares to the Buyer, and the unqualified
right upon
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<PAGE>
consummation of the transactions contemplated by this Agreement, to pass to the
Buyer good and valid title to the Shares, free and clear of all liens, claims,
options, charges or encumbrances of whatsoever nature.
2.03. Financial Statement. The Company has delivered the Financial
Statement to Buyer. The Financial Statement fairly presents the financial
condition and assets and liabilities (whether accrued, absolute, contingent or
otherwise) of the Company as of the Statement Date in accordance with Generally
Accepted Accounting Principles consistently applied.
2.04. Liabilities and obligations. Except for transactions entered into in
the ordinary course of the business of the Company the Company has no material
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise and whether due or to become due that are not reflected in the
Financial Statement or that have not otherwise been disclosed to Buyer.
Furthermore, the Sellers do not know or have any reasonable ground to know of
any basis for the assertion against the Company of any liability or obligation
of any nature or in any amount not disclosed to Buyer.
2.05. Absence of certain changes. Since the Statement Date and except as
reflected in the Trial Balance, the Company has not:
2.05(a). Suffered any material adverse change in its financial condition,
assets, liabilities or business.
2.05(b). Incurred any obligation or liability (whether absolute, accrued or
contingent) other than in the ordinary course of its business and consistent
with past practice.
2.05(c). Permitted or allowed any of its assets, tangible or intangible, to
be mortgaged, pledged or subjected to any liens or encumbrances.
2.05(d). Canceled any debts or claims or waived any rights of substantial
value or sold or transferred any of its assets except in the ordinary course of
business and consistent with past practice.
2.05(e). Made any capital expenditures or commitments in excess of an
aggregate of $5,000 for additions to property, plant or equipment.
2.05(f). Declared, paid or set aside for payment to its stockholders any
dividend or other distribution in respect of its capital stock or redeemed or
purchased or otherwise acquired any of its capital stock or any options relating
thereto or agreed to take any such action.
2.05(g). Made any material change in any method of accounting or accounting
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<PAGE>
practice.
2.05(h). Transferred any portion of the Shares.
2.05(i). Declared a bonus, entered into any employment contracts or
increased the salary or benefits to any of the employees.
2.06. Tax returns. The Company has duly filed all tax reports and returns
required to be filed by it and has duly paid all taxes and other charges due or
claimed to be due from it by federal and state taxing authorities. Except as
reflected in the Financial Statement and the Trial Balance, there are no pending
questions relating to, or claims asserted for, taxes or assessments against the
Company.
2.07. Title to properties, encumbrances. The Company has good and
marketable title to all of its properties and assets, real and personal,
tangible and intangible, and such properties and assets are subject to no
mortgage, pledge, lien, conditional sale agreement, encumbrance or charge of
whatsoever nature not reflected in the Financial Statement or the Trial Balance.
2.08. Plant and equipment. To the best of the Seller's knowledge and
belief, the plant, structures and equipment of the Company are in good operating
condition and repair, provided, however, that the Sellers make no warranty
concerning such plant, structures and equipment beyond the face hereof. Buyer
expressly represents and warrants to the Sellers that it has inspected the
plant, structures and equipment to its complete satisfaction and is relying on
the results of such inspection and not on any representation or warranty of
Sellers in consummating the transactions contemplated by this Agreement.
2.09. Litigation. There are no actions, proceedings, or investigations
pending, or to the knowledge of the Sellers threatened, against the Company, nor
do the Sellers know or have any reasonable ground to know of any basis for any
such action, proceeding or investigation.
2.10 Insurance. All policies of casualty and property damage, liability,
workers' compensation and other forms of insurance in effect with respect to the
Company are, and will be as of the Closing and for at least 30 days thereafter,
valid, outstanding and enforceable policies.
2.11. Bank accounts. Exhibit A sets forth the names and locations of all
banks in which the Company has accounts and the names of all persons authorized
to draw thereon.
2.12. Representations and Warranties. No representation or warranty by the
Sellers in this Agreement contains or will contain any untrue statement or omits
or will omit to state a material fact necessary to make the statements contained
therein not misleading. All representations and warranties made by the Sellers
in this Agreement shall be true and correct as of Closing with the same force
and effect as if they had been made on and as of such date.
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<PAGE>
2.13. Conduct of business. Sellers covenant that pending the Closing:
2.13(a). The Company's business will be conducted only in the ordinary
course.
2.13(b).No change will be made to the Company's authorized or issued
corporate shares.
2.13(c). No dividend or other distribution or payment will be declared or
made in respect to the Company's corporate shares.
2.13(d). No increase will be made in the compensation payable or to become
payable to any of the Company's employees, officers or directors.
2.13(e). No contract or commitment will be entered into by or on behalf of
the Company extending beyond June 1, 1998.
2.13 (f). Sellers will cause the Company to use its best efforts to
preserve the Company's business organization intact, to preserve for the Company
the goodwill of its suppliers, customers and others having business
relationships with the Company.
2.13(g). All debts will be paid as they become due.
ARTICLE III-- REPRESENTATIONS AND WARRANTIES BY THE BUYER
Buyer represents and warrants to the Sellers as follows:
3.01 Corporate organization. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Iowa and has full
power and authority to carry on its current business and to own, use, and
purchase its assets and properties, including the Shares.
3.02. Corporate authority. Buyer's Board of Directors has duly authorized
the execution and delivery of this Agreement to the Sellers and the carrying out
of its provisions. At Closing, Buyer shall furnish Seller duly certified copies
of such resolutions.
3.03. Binding nature. This Agreement shall, when duly executed and
delivered, be a legal and binding obligation of Buyer, enforceable in accordance
with its terms.
3.04. Representations and warranties. No representation or warranty by
Buyer in this Agreement contains or will contain any untrue statement or omits
or will omit to state a material fact necessary to make the statements contained
therein not misleading. All representations and warranties
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<PAGE>
made by Buyer in this Agreement shall be true and correct as of Closing with the
same force and effect as if they had been made on and as of such date.
3.05. Inspection and value. Buyer has formed its own opinion as to the
value of the Shares. The parties agree that the Sellers' warranties include only
the express written warranties that are contained in this Agreement. No other
express warranty, oral or written, not contained in this Agreement is of any
force and effect. The parties acknowledge that Buyer has or will have prior to
Closing inspected the assets and records of the Company to the full extent of
Buyer's desire, and that the Sellers have given Buyer ample opportunity to
conduct such inspection.
3.06. No Litigation. No actions or proceedings are pending or, to Buyer's
best knowledge, threatened before any court, administrative authority or other
authority that might materially or adversely affect Buyer's ability or right to
perform all of its obligations hereunder.
ARTICLE IV--CONDITIONS
4.01. Conditions to Buyer's obligations. All the obligations of Buyer under
this Agreement are subject to the fulfillment, at or before the Closing, of each
of the following conditions:
4.01(a). Representations and warranties. The representations and warranties
made by the Sellers in this Agreement shall be true when made, and true at and
as of the date of the Closing as though such representations and warranties were
made at and as of such date, except for changes arising in the ordinary course
of business, the aggregate cumulative effect of which on the financial condition
and results of operations of the Company is not materially adverse,
4.01(b). Performance. The Sellers shall have performed and complied with
all agreements, obligations and conditions required by this Agreement to be so
performed or complied with at or before the Closing.
4.01(c). Delivery of documents. The Sellers shall have delivered to Buyer
(i) their duly executed resignations from all directorships, officerships and
positions of employment with the Company and (ii) duly executed covenants not to
compete in substantially the form of Exhibit B.
4.02 Conditions to Sellers' obligations. All obligations of the Sellers
under this Agreement are subject to the fulfillment, at or before the Closing,
of each of the following conditions:
4.02(a). Representations and warranties. The representations and warranties
made by the Buyer in this Agreement shall be true when made, and true at and as
of the date of the Closing as though such representations and warranties were
made at and as of such date.
4.02(b). Performance. Buyer shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to so be
performed or complied with at or
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<PAGE>
before the Closing.
4.02(c). Payment. Buyer shall have paid the consideration called for by
Section 1.02 of this Agreement.
ARTICLE V--SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION
5.01. Survival of representations. All representations, warranties and
agreements made by any party in this Agreement or pursuant hereto shall survive
the Closing hereunder and any investigation at any time made by or on behalf of
the other parties.
5.02. Sellers' agreement to indemnify. Sellers hereby jointly and severally
agree to indemnify Buyer from and against any tax liability imposed by any
taxing authority on account of the operations of the Company before closing
except to the extent any such tax liability is reflected in the Trial Balance.
The duty to indemnify shall include the obligation to reimburse the Buyer for
costs and reasonable expenses incurred in defending any such claim, including,
without limitation, interest, penalties and reasonable attorneys' fees and
expenses. If any such claim is made against the Buyer for both pre-Closing and
post-Closing tax liability, however, the obligation of the Sellers to indemnify
and to reimburse shall be only for their pro rata share of the total tax
liability and for their pro rata share of costs and reasonable expenses. As used
in this Section, the term pro rata shall mean the percentage of the total claim
made against the Buyer that is for pre-Closing tax liabilities.
5.03. Buyer's agreement to indemnify. Buyer hereby agrees to indemnify the
Sellers from and against any tax liability imposed by any taxing authority
because of the operations of the Company after closing. The duty to indemnify
shall include the obligation to reimburse the Sellers for costs and reasonable
expenses incurred in defending any such claim, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses. If any such
claim is made against the Sellers for both pre-Closing and post-Closing tax
liability, however, the obligation of the Buyer to indemnify and to reimburse
shall be only for its pro rata share of the total tax liability and for its pro
rata share of costs and reasonable expenses. As used in this Section, the term
pro rata shall mean the percentage of the total claim made against the Sellers
that is for post-Closing tax liabilities.
5.04. Notice and tender of defense. It shall be a condition precedent to
the duty of either the Sellers or the Buyer to indemnify the other that the
party seeking indemnification shall give written notice to the other party of
any claim for which indemnification is sought not more than 15 days after the
party seeking indemnification receives notice thereof, that the party seeking
indemnification tender the defense of such claim to the other party and that the
other party reject such tender.
5.05. Reduction for tax benefits. The liability of any party for an
indemnification claim shall be limited to the net cost of such claim to the
indemnified party after taking account of any tax benefits resulting from
payment of the claim.
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<PAGE>
5.06. Remedies cumulative. Except as herein expressly provided, the
remedies provided in this Agreement shall be cumulative and shall not preclude
the assertion by any party of any other rights or the seeking of any other
remedies by it against any other party.
ARTICLE VI--MISCELLANEOUS
6.01. "Short-year" income tax returns. Because the Company is a "S
corporation" within the meaning of ss.1361 of the Internal Revenue Code of 1986,
as amended, the purchase of the Shares by Buyer will cause its Subchapter "S"
election to terminate and necessitate the filing of "short-year" federal and
state income tax returns. The Sellers shall cause such returns to be prepared
and filed at their sole expense. Buyer agrees to make available, at no cost to
the Sellers, such books and records of the Company as the Shareholders shall
deem necessary or helpful to the preparation of such tax returns.
6.02. Commissions. Each of the parties hereto represents and warrants that
there are no claims for brokerage commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
6.03. Parties in interest. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the respective heirs, beneficiaries, representatives, successors and assigns of
the parties hereto. In case of any assignment, the assignor shall remain liable.
6.04. Entire agreement, amendments. This Agreement contains the entire
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties, covenants or
undertakings other than those expressly set forth. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties hereto or their respective successors or assigns. Any
condition to a party's obligations hereunder may be waived by such party.
6.05. Headings. The article, and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.06. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, certified mail, postage prepaid, to the parties at the
following addresses, or at such other addresses as the parties may designate in
writing from time to time hereafter.
If to Buyer: Breda Tele-Services, Ltd.
P.O. Box 190
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<PAGE>
Breda, IA 51436-0190
Attention: Bob Boeckman, General Manager
with a copy to: Thomas W. Polking
Attorney at Law
200 Lincoln Building
Jefferson, IA 50129
If to Sellers: Arthur and Mary Zerwas
313 North M-64 County Road
Westside, IA 51467
with a copy to: A. J. Stoik
Attorney at Law
P.O. Box 327
Sioux City, IA 51102
6.07. Law governing. This Agreement shall be governed by, construed and
enforced in accordance with the substantive laws of the State of Iowa.
6.08. Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been duly executed as of the date
first above written.
Breda Tele-Services, Ltd. /s/ Arthur Zerwas
-----------------------------------
Arthur Zerwas
By: /s/ Dean Schettler /s/ Mary Zerwas
------------------------------- -----------------------------------
Dean Schettler, President Mary Zerwas
E-21
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated October 6, 1998, by and between
NewPath Communications, L.C., ("Seller") and Teleservices, Ltd., an Iowa
_____________________, ("Buyer").
PREMISES:
A. Seller owns and operates a cable television system serving the community
of Auburn, Iowa (the "System").
B. Seller desires to sell, and Buyer desires to buy, Seller's assets used
in the operation of the System for the purchase price and on the terms and
conditions hereinafter set forth.
AGREEMENTS:
In consideration of the above premises and the covenants and agreements
contained herein, Buyer and Seller agree as follows:
SECTION 1.
DEFINED TERMS
The following terms shall have the following meanings in this Agreement:
1.1 "Assets" means those tangible and intangible assets used in connection
with the System being sold, transferred, and otherwise conveyed to Buyer
hereunder, as specified in detail in Section 2. 1.
1.2 "CATV" means community antenna television.
1.3 "Closing Date" shall be October 31, 1998, or such other date as
mutually agreed between the parties.
1.4 "Contracts" means all subscription agreements and other written
agreements, to which Seller is a party on the date hereof and which relate to
the Assets, or the operation of the System, plus such new agreements as are
entered into by Seller in the ordinary course of business between the date
hereof and the Closing Date and which relate to the System, and minus such
agreements which in the interim have expired or been terminated and minus
Seller's blanket programming affiliation
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agreements.
1.5 "Franchise" means the authorizations relating to the System granted to
Seller by the respective community as identified in Schedule 1 together with any
assignments thereof and any consents of said assignments.
1.6 "Intangible Property" means all easements, right-of-way, and other
intangible property required to operate the System.
1.7 "Personal Property" means all of the System's tower equipment,
antennas, earth stations, aboveground and underground cable, distribution
systems, headend building electronics and line amplifiers, and related
equipment, plant and other tangible personal property which are owned or leased
by Seller and used on the date hereof in the conduct of business or operation of
the System, plus such additions hereto and deletions therefrom arising in the
ordinary course of business between the date hereof and the Closing Date.
1.8 "Real Property" means all of the real property leased by Seller and
utilized in the operation of the System.
SECTION 2.
SALE AND PURCHASE OF ASSETS
2.1 Agreement to Sell and Buy. Subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to transfer and deliver to Buyer
on the Closing Date, and Buyer agrees to purchase, all of the Assets, free and
clear of any liabilities, liens, conditions or encumbrances for the System
described as follows:
(a) The Franchises and Intangible Property attached as Schedule 1;
(b) The Real and Personal Property set forth in Schedule 2;
(c) The Contracts set forth in Schedule 3;
(d) All subscriber and customer lists relating to the System in
Schedule 4;
(e) All of Seller's information, technical information and data, maps,
plans, and records relating to the operation of the System, including
executed copies of the Contracts and filings with the Franchising
Authorities; and
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<PAGE>
(f) Copies of all books and records relating to the operation of the
System, including those required to be kept by the Franchising Authorities.
2.2 Purchase Price and Payment. The Purchase Price shall be $65,320.00 as
adjusted pursuant to Section 2.3. The Purchase Price shall be paid by Buyer to
Seller at Closing Date by wire transfer of funds to such account as may be
designated by Seller to Buyer in writing.
2.3 Adjustments to the Purchase Price - Prorates.
A. The Purchase Price shall be increased by an amount equal to all
prepaid expenses as agreed by the parties as of the Closing Date.
B. The Purchase Price shall be reduced by an amount equal to all
prepaid customer cable television subscription fees and charge, as of the
Closing Date.
C. The Purchase Price shall be reduced by an amount equal to accrued
franchise fees and accrued real or personal property taxes and sales taxes
due for the System that are related to the period ending on the Closing
Date that have not been paid by Seller.
D. Subscribers whose bills for cable service are past due by sixty
(60) days or more shall not be counted in arriving at the total number of
paying subscribers.
E. The Purchase Price shall be increased by an amount equal to ninety
percent (90%) of all Accounts Receivable from subscribers being served by
the System as of the Closing Date, which are not more than sixty (60) days
past due.
F. The Purchase Price shall be reduced by $710 for subscriber
shortfall of less than 92 subscribers.
One (1) day prior to the Closing Date, the parties will confer and arrive
at a good faith estimate of the adjustments provided for herein, and the balance
of Purchase Price to be paid at the Closing Date shall be adjusted accordingly.
Within sixty (60) days after each Closing Date, the parties will resolve any
remaining adjustments.
2.4 Assumption of Liabilities and Obligations. As of 11:59 p.m. of the
Closing Date, Buyer shall assume and agree to pay, discharge and perform, when
due, (a) all the obligations and liabilities of Seller under the Franchises
insofar as they relate to the time period after the Closing Date and arise out
of events occurring after the Closing Date, (b) all of Seller's obligations for
future performance and delivery of service to subscribers to the System, (c) all
obligations and liabilities arising out of events occurring after the Closing
Date related to Buyer's ownership of the assets or its operation of the System
after the Closing Date and (d) an obligation to provide complimentary
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<PAGE>
service under the conditions and to those set forth in Schedule 5. All other
obligations and liabilities of Seller shall remain and be the obligations and
liabilities of Seller.
Buyer shall not be liable for and does not assume any liabilities or obligations
of Seller, except as set out hereunder. If Buyer incurs any costs, fees, or
other expenses with respect to any liabilities or obligations of Seller, not
specifically assumed by Buyer, Buyer will be entitled to indemnification
pursuant to Section 9 hereof.
SECTION 3.
REPRESENTATIONS AND WARRANTEES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Organization, Standing and Authority. Seller is a limited liability
company, duly organized, validly existing and in good standing under the laws of
the State of Iowa. Seller has all requisite organizational power (i) to own,
operate, lease, and use the Assets as presently owned, operated, leased and
used, (ii) to conduct its business of operating the System as presently
conducted, and (iii) to execute, deliver, and perform its obligations under this
Agreement and the documents contemplated hereby according to their respective
terms.
3.2 Authorization and Bind Obligation. The execution, delivery, and
performance of this Agreements by Seller have been duly authorized by all
necessary organization action on the part of Seller. This Agreement has been
duly executed and delivered by Seller and constitutes a legal, valid, and
binding obligation of Seller enforceable against Seller in accordance with its
terms.
3.3 Franchise. Schedule 1 contains the Franchise issued. Seller has
complied in all material respects with the Franchise.
3.4 Title to and Condition of Personal Property/Leased Property Utilized.
Schedule 2 contains descriptions of all material Personal Property used by
Seller to conduct the business and operation of the System as now conducted and
real property used in the operation of the System which is subject to a lease
agreement. Such lease is assignable and Seller is not in default on such lease
and has complied with all obligations thereunder.
3.5 Contracts. Schedule 3 contains descriptions of all the Contracts except
for subscriptions or converter rental agreements and deposits with subscribers
for the cable services provided by the System in the ordinary course of business
and which may be canceled by the System without penalty on not more than ninety
(90) day notice.
3.6 Schedules. The Schedules, attached hereto, list all material Assets
used or useful for the performance of any Contract to be assumed by Buyer and
for the lawful conduct of the System
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operation. The parties may agree to defer completion of certain Schedules until
any time prior to closing. All Schedules to this Agreement are substantially
true, accurate and complete in all material respects.
3.7 No Breach or Violation. The execution, delivery and performance of this
Agreement will not, subject to obtaining those approvals and consents described
in Schedule 1, result in: (1) a material breach or violations by Seller of, or
(2) constitute any material default by Seller under, or (3) create or impose any
security interest upon any of the assets pursuant to, any Franchise, statute,
ordinance, rule, regulation, agreement, instrument or order to which Seller is a
party or by which Seller is bound.
3.8 Title to Assets. Seller has title to the Assets, free and clear of any
liens, encumbrances or any other interest to secure payment or performance of an
obligation, or which retains or reserves such an interest for such purposes.
3.9 Required Consents. Seller has, or will have as of the Closing Date,
obtained all governmental franchises, approvals, licenses, consents and other
authorizations, and has, or will have as the Closing Date, entered into all
other agreements and obtained all other approvals and consents necessary and
required for Buyer to operate the System and to own, lease, use and operate, as
the case may be, the Assets at the places and in the manner in which such System
is presently operated and operated on the Closing Date (collectively, the
"Required Consents"), unless Buyer agrees that any Required Consents need not be
obtained until after the Closing Date. All Required Consents are set forth on
Schedule 1. Buyer agrees to cooperate in obtaining the Required Consents to the
transfer of all governmental franchise, approvals, licenses, consents, and other
authorizations.
3.10 Franchise and Intangible Property. Except as described below,
Franchises, easements and other intangibles required to operate the system are
currently in full force and effect and are valid in all material respects under
all applicable federal, state and local laws. Seller is not in violation or
default in any material respect under any Franchise or other agreement. There is
no legal action, governmental proceeding or investigation pending or, to
Seller's knowledge, threatened, for the purpose of modifying, revoking,
terminating, suspending, canceling or reforming any Franchise or other
agreement. Seller is in substantial compliance with other requirements of all
governing or regulatory authorities (including the Federal Communications
Commission ("FCC")) relating to the Franchise or other agreements, including
without limitation, all requirements relating to notifications, filing,
reporting, posting and maintenance of logs and records.
3.11 FCC and Copyright Compliance. Seller is duly authorized under
applicable CATV Instruments and FCC rules, regulations and orders to distribute
the signals presently being carried to the subscribers of its System and has all
required licenses for the operation of all facilities. The operation of the
System is in substantial compliance with the FCC's rules and regulations, and
Seller has received no notice and has no reason to know of any claimed default
or violation with respect to the foregoing. Seller has filed all required
reports with the FCC. Seller has made all requisite filings and payments with
the Register of Copyrights and is otherwise in substantial compliance with all
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applicable benchmark rules and regulations of the Copyright Office. Up to 20
days after the execution of this Agreement, the Buyer shall have the right to
conduct a physical and technical inspection of the system and shall have the
right to conduct any tests to ensure that the System is in compliance with FCC
rules, regulations and orders.
3.12 Condition of Equipment. The Equipment was constructed, installed,
operated, and maintained in a proper manner, and is free from defects of
workmanship or material in light of its age and the use of which it has been
put. Seller's Assets are suitable for continued use in the manner in which they
are presently operated without the need for any substantial repairs or
replacement.
3.13 Legal and Governmental Proceeding. Seller is not subject to any order
of any court, government authority or agency, and there are not legal actions or
governmental proceedings or investigations pending or, to the best of Seller's
knowledge, threatened either or compel Seller to make any change in the
character or location of any of the assets or otherwise affecting the Assets of
the System.
3.14 Employment Matters. Seller has complied in all material respects with
all applicable laws relating to the employment of labor, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity and
the payment and withholding of taxes.
Buyer is not required to continue any defined benefit, defined
contribution, or other employee benefit plan subject to the jurisdiction of
ERISA to which Seller is currently a party.
3.15 Overbuilds. No area presently served by the System is presently
subject to or threatened to be subject to any overbuild situation. To the best
of Seller's knowledge, no person or entity other than Seller has been granted or
has applied for a CATV franchise in any of the communities in the area presently
served by the System.
3.16 Information on the System.
A. As of the Closing Date, the System will have a minimum of 92
subscribers.
B. Schedule 6 lists the rates charged to subscribers for each class of
service for the System.
C. Schedule 7 lists the television broadcast signals and other
programming carried by each separate System as of the date of this
Agreement.
3.17 Tax Proceedings. No deficiencies have been assessed against Seller on
the System by any federal, state or local tax authorities and Seller is unaware
of any tax audits by any federal, state or
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local tax authorities pertaining to the System. Seller has duly and timely filed
in proper form all federal, state and local income, franchise, sales, use,
property, excise, payroll and other tax returns and all other reports (whether
or not relating to taxes) required to be filed by law with all governmental
authorities. All taxes, fees and assessments of whatever nature due or payable
by Seller pursuant to such returns, reports of otherwise, have been paid other
than accrued property taxes that have been credited against the Purchase Price.
3.18 Compliance with Laws. To the best of Seller's knowledge, it has
complied in all material respects with (i) the terms of each Franchise, and (ii)
all applicable federal, state, and local laws, rules, regulations and
ordinances.
3.19 Absences of Liabilities. Seller has not with respect to the System:
(a) incurred any obligations or liability (absolute or contingent)
except current liabilities incurred, and obligations under Contracts
entered into which are listed in Schedule 3 hereto, all in the ordinary
course of business of the System;
(b) mortgaged, pledged or subjected to lien, charge or any other
encumbrance (except for such encumbrances that will be extinguished before
or on the Closing Date), any of its assets, tangible or intangible
(excluding the current real and personal property taxes not yet due and
payable); or
(c) entered into any transactions (other than this Agreement) other
than in the ordinary course of business.
3.20 Environmental Matters. Seller is in compliance with all applicable
federal, state and local laws and regulations related to the environment, health
and safety (the "Environmental Laws") on properties utilized by the System.
Seller has not stored, treated, or disposed of hazardous wastes, substances or
materials on System leased or owned property, except in compliance with
applicable Environmental Laws.
3.21 Franchise. The Franchise will be assigned to the Buyer on the Closing
Date.
3.22 No Change in Policy. Seller warrants that there has been no change in
the business practice or policies of Seller during the last six months with
regard to subscriber disconnects, acceptance of partial payments, or sales
incentives and discounts unless otherwise disclosed.
3.23 Seller Indemnification. Seller will indemnify, and hold Buyer harmless
from, any claims, taxes, liabilities, or causes of action, whether known or
unknown, which occur prior to the Closing Date, or which are not assumed by
Buyer.
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SECTION 4.
REPRESENTATIONS AND WARRANTEES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization, Standing and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Iowa. Buyer has all necessary corporate power to execute, deliver, and perform
this Agreement and the documents contemplated hereby according to their
respective terms.
4.2 Authorization and Binding Obligation. The execution, delivery, and
performance of this Agreement by Buyer have been duly authorized by all
necessary corporate action on the part of the Buyer. This Agreement constitutes
a legal, valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with its terms.
SECTION 5.
PRE-CLOSING COVENANTS OF SELLER
5.1 Pre-Closing Covenants. Seller covenants and agrees that between the
date hereof and the Closing Date, expect as contemplated by this Agreement or
with prior written consent of Buyer, Seller will operate the System in the
ordinary course of business and consistent with its past practices. Seller shall
provide Buyer and its authorized representatives reasonable books, records,
franchise agreements, contracts and documents, the most recent maps relating to
the System and such other information as reasonably request by Buyer. Seller
will use it best efforts to preserve Seller's business organization intact, and
to preserve for Buyer the goodwill of its suppler, subscribers, and others
having business relations with it; and there shall be no material changes in any
contracts or commitments, nor shall any new contracts or commitments be entered
into extending beyond the Closing Date without the written consent of Buyer,
except for those contracts and commitments involving the sale of services and
purchases of materials and supplies in the ordinary course of business.
5.2 Maintenance of Insurance. Seller shall maintain in full force and
effect up to an including the Closing Date its existing insurance policies
related to the System and shall provide Buyer with a list of its insurance
coverage and related costs. Buyer shall provide its own coverage for insurance
after the Closing Date.
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SECTION 6.
SPECIAL COVENANTS AND AGREEMENTS
6.1 Consents.
A. Seller and Buyer shall cooperate and make reasonable efforts to
obtain the Franchise Authority's consent to transfer the Franchise and
Contracts for the System prior to the Closing Date.
B. Buyer shall, at Seller's request, promptly furnish Seller with
copies of such documents and information as Seller may reasonably request
in connection with obtaining any consent to the transaction contemplated by
this Agreement.
6.2 Taxes, Fees, and Expenses. Seller shall pay all sales, use, income,
transfer, purchase, recording and documentary taxes and fees, if any, arising
out of the transfer of the Assets pursuant to this Agreement. Except as
otherwise provided in this Agreement, each party shall pay its own expenses
incurred in connections with the authorization, preparation, execution and
performance of this Agreement.
6.3 Brokers. Buyer and Seller each represents and warrants that it has not
incurred any liability for any finders' or brokers' fees or commissions in
connection with the transaction contemplated by this Agreement.
6.4 Confidentiality. Each party hereto will keep confidential the content
and subject matter of this Agreement and any information which obtained from the
other part in connection with the transaction contemplated hereby and which is
not readily available to member of the general public.
6.5 Cooperation. Buyer and Seller shall cooperate fully with each other in
connection with any actions required to be taken as a part of their respective
obligations under this Agreement. Following the Closing Date, Buyer and Seller
shall continue to cooperate to effectuate a smooth transaction of service and to
maintain data integrity (including billing records) and customer relations.
6.6 Risk of Loss. The risk of any loss, damage or destruction of any of the
Assets from any cause whatsoever shall be borne by Seller at all times prior to
the completion of the Closing, and thereafter, by Buyer.
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SECTION 7.
CLOSING DELIVERIES
7.1 Deliveries by Seller. Prior to or on the Closing Date, Seller shall
deliver to Buyer the following:
A. Transfer Documents. A bill of sale, assignments and other transfer
documents which shall be sufficient to vest in Buyer all rights, title and
interest to the Assets in the name of Buyer, free and clear of all
mortgages, liens, encumbrances, and claims except as permitted in this
Agreement;
B. Consents. A copy of the Consent of the Franchise Authority to
transfer the Franchise, Headend Site Lease, as well all other required
consents shall be obtained by Seller prior to Closing, including the
execution of new contracts between Buyer and each provider for all existing
channels;
C. Officer's Certificate. A certificate, dated the Closing Date,
executed by an Officer of Seller, certifying: (i) that the representations
and warranties of Seller contained in this Agreement are true and complete
in all material respects as of the Closing Date, except for changes
contemplated by this Agreement; and (ii) that Seller has, in all material
respects, performed all of its obligations and complied with all of its
covenants set forth in this Agreement to be performed and complied with
prior to or on the Closing Date; and (iii) Seller has the corporate
authority to enter into this Agreement
D. Subscriber Reports. A true and complete copy of all customers lists
and all subscriber records.
E. UCC Searches. Seller shall deliver UCC searches from the relevant
county and state public records dated no more than 10 days prior to
closing, showing any liens or encumbrances against the assets. If any liens
or encumbrances do appear on the UCC searches, Seller shall deliver
appropriate releases or termination statements to Buyer at Closing.
7.2 Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall
deliver to Seller the following:
A. Purchase Price. The Purchase Price as provided for in Section 2.2
and 2.3.
B. Assumption Agreements. Appropriate assumption agreements pursuant
to which Buyer shall assume and undertake to perform Seller's obligations
under the Franchises, Contracts and Leases for the System as listed on
appropriate Schedules.
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C. Officer's Certificate. A certificate, dated as of the Closing Date,
executed by an Officer of Buyer, certifying (i) that the representations
and warranties of Buyer contained in this Agreement are true and complete
in all material respects as the Classing Date, and (ii) that Buyer has, in
all material respects, performed all of its obligations and complied with
all of its covenants set forth in this Agreement to be performed or
complied with on or prior to the Closing Date; and
D. Resolutions. A copy of a corporate resolution evidencing corporate
authority to enter into and perform this Agreement.
SECTION 8.
RIGHTS OF BUYER AND SELLER ON TERMINATION OR BREACH
8.1 Termination Rights. This Agreement may be terminated upon written
notice as specified below:
A. If on the Closing Date any of the conditions precedent to the
obligations of the parties set forth in this Agreement have not been
satisfied by the responsible party or waived in writing by the party for
whose benefit the condition is imposed, the latter can terminate this
Agreement.
B. If on the Closing Date a party is unable to make the deliveries set
forth herein and such deliveries are not waived in writing by the party for
whose benefit the condition is imposed, the latter may terminate this
Agreement.
C. If on the Closing Date, all or part of the System is not operable,
the Buyer may terminate this Agreement;
D. If on the Closing Date, all material agreements and covenants of a
party have not been fulfilled and the other party has not waived such
compliance in writing the latter may terminate this Agreement.
E. If on the Closing Date, all material representations and warranties
of a party are not true, the other party may terminate this Agreement;
F. If on the Closing Date, the Buyer has not been able to obtain
programming contracts with current cable channel providers, Buyer may
terminate this Agreement;
G. If on the Closing Date, necessary approvals from the Federal
Communications Commission related to the operation of the System by Buyer
have not been received, Buyer may terminate this Agreement.
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Additionally, either party may terminate the Agreement if on the Closing
Date, there is an action or proceeding to set aside or modify the authorization
of the transaction provided for herein to or enjoin or prevent its
consummations.
SECTION 9.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES, CROSS-DEFAULT AND INDEMNIFICATION
9.1 Representations and Warranties. All representations and warranties
contained in this Agreement shall be deemed continuing representations and
warranties and shall survive the Closing Date, but all claims made by virtue of
such representations, warranties and agreements shall be made under, and subject
to the limitations set forth in this Section 9.
9.2 Indemnification by Seller.
A. Seller shall indemnify and hold Buyer harmless against and with
respect to, and shall reimburse Buyer for:
1. Any and all losses, liabilities or damages resulting from an
untrue representation, breach of warranty or nonfulfillment of any
covenant by Seller contained herein or in any certificate, document or
instrument delivered to Buyer hereunder;
2. Any and all obligations of Seller not assumed by Buyer
pursuant to the terms of this Agreement;
3. Any and all losses, liabilities or damages resulting from or
related to Seller's operation or ownership of the System prior to the
Closing Date; and
The indemnity shall include providing attorney fees and costs to Buyer as
required to enforce terms of the indemnity.
9.3 Indemnification by Buyer.
A. Buyer shall indemnify and hold Seller harmless against and with
respect to, and shall reimburse Seller for:
1 . Any and all losses, liabilities or damages resulting from any
untrue representation, beach of warranty or non fulfillment of any
covenant by Buyer obtained herein or in any certificate, document or
instrument delivered to Seller hereunder; and
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2. Any and all losses, liabilities or damages resulting from
Buyer's operation or ownership of the System on and after the Closing
Date, including any and all liabilities and obligations assumed by
Buyer pursuant to Section 2.4 above
The indemnity shall include providing attorney fees and costs to
Seller as required to enforce terms of the indemnity.
9.4 Further Assurances. At any time and from time to time after the Closing
Date, Seller will, upon the request and at the expense of Buyer, do, execute,
acknowledge and deliver or will cause to be done, executed, acknowledged and
deliver, all such further acts, deeds, assignments, transfer, conveyance, powers
of attorney or assurances as may be reasonably required for better assigning,
transferring, granting, assuring and confirming to Buyer, or for aiding and
assisting in the reduction to possession by Buyer, any of the assets purchased
pursuant to this Agreement.
SECTION 10.
REMEDIES
In addition to the rights of termination listed in Section 8 and the
indemnification rights in Section 9, the parties shall have all other rights and
remedies available under law including specific performance.
SECTION 11.
MISCELLANEOUS
11.1 Notices. All notices, demands, requests required or permitted to be
given under the provision of this Agreement shall be (i) in writing, (ii)
delivered by personal delivery, or sent by commercial delivery service or
registered or certified mail, return receipt requested, (iii) deemed to have
been given on the date of personal delivery or the date set forth in the records
of the delivery service or on the return receipt, and (iv) addressed as follows:
If to Seller:
Jay R. Eliason
11260 Aurora Avenue
Bldg. 6
Des Moines, IA 50322
If to Buyer:
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11.2 Benefit and Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successor and permitted assigns.
11.3 Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Iowa.
11.4 Entire Agreement. This Agreement, all schedules hereto, and all
documents and certificates to be delivered by the parties pursuant hereto
collectively represent the entire understanding and agreement between Buyer and
Seller with respect to the subject matter hereof. All Schedules attached to the
Agreement shall be deemed part of this Agreement and incorporated herein, where
applicable, as if fully set forth herein.
11.5 Construction. The enforceability or invalidity of any paragraph or
subparagraph of this Agreement shall not effect the validity of this Agreement.
This Agreement shall be subject to interpretation of the laws of the State of
Iowa.
11.6 Allocations of Purchase Price. On the Closing Date, Buyer and Seller
shall mutually agree to an allocation of the Purchase Price between all the
Assets.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
Representatives of Buyer and Seller as of the date first written above.
SELLER: BUYER:
NewPath Communications, L.C. Teleservices, Ltd.
By: /s/ Jay R. Eliason By: /s/ Dean R. Schettler
------------------------------- -----------------------------------
Its: President Its: President
------------------------------- -----------------------------------
E-35
EXHIBIT 2.4
AMENDMENT OF ASSET PURCHASE AGREEMENT
This Amendment to Asset Purchase Agreement ("Amendment") is made and
entered into as of this 11th day of January, 1999, by and between Golden Sky
Systems, Inc., a Delaware corporation, its successors or assigns (collectively,
"Buyer"), and Breda Telephone Corporation, an Iowa corporation ("Seller").
RECITALS
WHEREAS, Seller and Buyer are parties to that certain Asset Purchase
Agreement dated November 30, 1998 (the "Purchase Agreement"), whereby Seller has
agreed to sell and Buyer has agreed to purchase substantially all of the assets
of Seller used or held for use in its business of providing DIRECTV(R)
programming services to subscribers within the Service Area (all capitalized
terms not defined herein shall have the meanings given them in the Purchase
Agreement);
WHEREAS, it was the intent of Buyer and Seller for Seller to have provided
certain financial information to Buyer as of the Closing Date; and
WHEREAS, said financial information has not been provided to Buyer as of
the Closing Date and thus the parties wish to amend the Purchase Agreement in
accordance with the terms and conditions of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and mutual promises and
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Section 7.2.3 of the Purchase Agreement is deleted in its entirety and
shall now read as follows:
7.2.3 As soon as available after the Closing, Seller will deliver to Buyer
copies of its correct, complete, unaudited, segmented balance sheet and
income and expense statements for the fiscal year ended December 31, 1998.
After the Closing, Seller agrees to provide Buyer, or its agents, all
information reasonably necessary for Buyer's accountants to prepare
audited, segmented cash flow statements, balance sheets and income and
expense statements for the Business for the time periods required by Buyer.
The accounting fees for conducting the audit shall be the responsibility of
Buyer. All documents delivered pursuant to this Section 7.2.3 will
accurately reflect the operating results of the Business.
2. Except as amended hereby, the Purchase Agreement shall remain in full
force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
SELLER:
Breda Telephone Corporation
By: /s/ Dean Schettler
----------------------------
Dean Schettler, President
BUYER:
Golden Sky Systems, Inc.
By: /s/ Rodney A. Weary
----------------------------
Rodney A. Weary, President
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EXECUTION COPY
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
GOLDEN SKY SYSTEMS, INC.
AND
BREDA TELEPHONE CORPORATION
DATED AS OF
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as of
this 30th day of November, 1998, by and between Golden Sky Systems, Inc., a
Delaware corporation, its successors or assigns (collectively, "Buyer") and
Breda Telephone Corporation, an Iowa corporation ("Seller").
Recitals:
Seller is engaged in the business of providing DIRECTV(R) programming
services to subscribers within the Service Area (as defined herein), and Buyer
desires to purchase and Seller desires to sell all of Seller's assets used or
held for use in the DIRECTV(R) business as conducted within the Service Area.
Contemporaneously with the execution of this Agreement, Buyer and Seller are
entering into a certain Management Agreement (the "Management Agreement")
whereby Buyer shall manage and operate the Business beginning December 10, 1998
and continuing through the Closing.
Agreement
In consideration of the above recitals and the mutual agreements stated in
this Agreement, the parties intending to be legally bound, agree as follows:
Section 1. Definitions.
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms, when used in this Agreement, will have the meanings set forth
below:
1.1 Accounts Receivable. All accounts receivable of Seller generated in the
conduct of its Business, including without limitation accounts receivable from
Seller's customers and subscribers.
1.2 Affiliate. With respect to any Person, any other Person controlling,
controlled by or under common control with such Person, with "control" for such
purpose meaning the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities or voting interests, by contract or
otherwise.
1.3 Assets. All properties, privileges, rights, interests and claims, real
and personal, tangible and intangible, of every type and description (including,
without limitation, Accounts Receivable, Equipment, Intangibles, Inventory,
Licenses and Seller Contracts), that are used, or held for use, by Seller
exclusively in the Business and in which Seller has any right, title or interest
(or in which Seller hereafter acquires any right, title or interest on or before
the Closing Date), but excluding all Excluded Assets.
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1.4 Business. The business of the marketing and distribution of NRTC/Hughes
DIRECTV(R) programming services to customers (such term may be used synonymously
herein with the term "subscribers"), within the Service Area as conducted by
Seller on the date of this Agreement, and as more particularly described on
Schedule 1.4 hereto.
1.5 Business Day. Any day other than Saturday, Sunday or a day on which
banking institutions in New York, New York or Kansas City, Missouri are required
or authorized to be closed.
1.6 Closing; Closing Date. The consummation of the transactions
contemplated by this Agreement, as described in Section 8, is referred to as the
Closing, and the date thereof is referred to as the Closing Date.
1.7 Encumbrance. Any mortgage, lien, security interest, security agreement,
conditional sale or other title retention agreement, limitation, pledge, option,
assessment or other such charge, restrictive agreement, restriction,
encumbrance, adverse interest, restriction on transfer, or exception to or
defect in title or other ownership interest (including reservations, rights of
way, possibilities of reverter, encroachments, easements, rights of entry,
restrictive covenants, leases and licenses), other than the Permitted
Encumbrances.
1.8 Environmental Law. Any Legal Requirement relating to pollution or
protection of public health, safety or welfare or the environment, including
those relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
1.9 Equipment. All product demonstration equipment, office equipment,
vehicles and other tangible personal property owned, leased, used or held for
use exclusively in the operation of the Business (other than Inventory which is
separately defined herein), including, without limitation, those described on
Schedule 1.9 hereto.
1.10 Governmental Authority. (i) The United States of America, (ii) any
state, commonwealth, territory or possession of the United States of America and
any political subdivision thereof (including counties, municipalities and the
like), (iii) any foreign (as to the United States of America) sovereign entity
and any political subdivision thereof, or (iv) any agency, authority or
instrumentality of any of the foregoing, including any court, tribunal,
department, bureau, commission or board.
1.11 Hazardous Substances. Any pollutant, contaminant, chemical,
industrial, toxic, hazardous or noxious substance or waste which is regulated by
any Governmental Authority,
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including, without limitation, (a) any petroleum or petroleum compounds (refined
or crude), flammable substances, explosives, radioactive materials or any other
materials or pollutants which pose a hazard or potential hazard to the Real
Property or to Persons in or about the Real Property or cause the Real Property
to be in violation of any laws, regulations or ordinances of federal, state or
applicable local governments, (b) asbestos or any asbestos-containing material
of any kind or character, (c) polychlorinated biphenyls ("PCBs"), as regulated
by the Toxic Substances Control Act; 15 U.S.C. ss. 1251 et seq., (d) "economic
poison," as defined in the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 135 et seq., (e) "chemical substance," "new chemical substance" or
"hazardous substance or mixture" pursuant to the Toxic Substances Control Act,
15 U.S.C. ss. 2601 et seq., and (f) "hazardous substances" pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 6901 et seq.
1.12 Intangibles. All intangible assets, including the telephone numbers,
subscriber lists, claims, trademarks, servicemarks, patents, copyrights, files,
records and goodwill, if any, owned, used or held for use in the Business.
1.13 Inventory. All consumer DSS units intended for sale, resale or lease
to the public including, without limitation, satellite dishes, receivers,
modems, block converters, fittings, selfinstall kits, installation supplies and
all other assets owned by Seller and intended for resale to the public and are
for use exclusively in the operation of the Business. Schedule 1.13 hereto lists
the inventory available as of the date of this Agreement and, once updated as
required herein, as of the Closing Date.
1.14 Legal Requirement. Any statute, ordinance, code, law, rule,
regulation, order or other requirement, standard or procedure enacted, adopted
or applied by any Governmental Authority, including judicial decisions applying
common law or interpreting any other Legal Requirement.
1.15 Licenses. All franchises, approvals, authorizations, permits,
licenses, easements, registration, qualifications, leases, variances and similar
rights obtained from any Governmental Authority or other governing entity
pertaining to the Business.
1.16 Permitted Encumbrances. The following Encumbrances: (a) liens for
taxes, assessments and governmental charges not yet due and payable; (b) zoning
laws and ordinances and similar Legal Requirements; provided that (i) Permitted
Encumbrances will not include any item which could materially adversely affect
the operation or the conduct of the Business and (ii) the classification of any
item as a Permitted Encumbrance will not affect any liability Seller may have
for such item, including, without limitation, pursuant to any indemnity
obligation under this Agreement.
1.17 Person. Any natural person, corporation, partnership, trust,
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.18 Programming Services. One or more tiers of subscription DIRECTV(R)
satellite
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programming sold to subscribers for which a subscriber pays a fixed monthly fee
and including pay per view events and ala carte programming services and
specifically excluding equipment leasing revenues and financing.
1.19 Real Property. All Assets consisting of real property, including all
appurtenances, improvements and fixtures located thereon, and all interests in
any of the foregoing.
1.20 Required Consents. "Required Consents" means all licenses,
authorizations, approvals and consents required under Licenses, Seller Contracts
or otherwise for (a) Seller to transfer the Assets and the Business to Buyer,
(b) Buyer to conduct the Business and to own, lease, use and operate the Assets
at the places and in the manner in which the Business is conducted as of the
date of this Agreement and on the Closing Date, (c) Buyer to assume and perform
the Seller Contracts, and (d) Buyer to collaterally assign the Assets to its
lenders as security for Buyer's indebtedness.
1.21 Seller Contracts. Except for those which are included in the Excluded
Assets, all contracts and agreements, oral or written, pertaining to the
ownership, operation and maintenance of the Assets or the Business or used or
held for use in the Business in which Seller has any right, title or interest
(or in which Seller hereinafter acquires any right, title or interest on or
before the Closing Date), including, without limitation, those described on
Schedule 1.21 hereto, Seller's NRTC Member Agreement(s) for Marketing and
Distribution of DSS Programming Services (collectively, the "Member Agreement")
and Seller's customer rental agreements and equipment financing agreements.
1.22 Service Area. Collectively, any areas in which Seller operates the
Business, which are the cabled and non-cabled homes located in the counties of
Sac and Fremont in the State of Iowa and Cass County in the State of Nebraska,
and the non-cabled homes located in the counties of Carroll, Crawford and Greene
in the State of Iowa and the counties of Nemaha, Otoe and Richardson in the
State of Nebraska.
1.23 Other Definitions. The following terms are defined in the Sections
indicated:
Term Section
---- -------
Action 11.4
Assumed Liabilities 4.1
Base Purchase Price 3.2
Buyer Deposit 3.1
Claiming Party 3.4.3
Disputed Adjustment Amount 3.4.3
Earnest Money Escrow Agreement 3.1
Escrow Agent 3.1
Excluded Assets 4.2
Final Adjustments Report 3.4.2
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Financial Statements 5.10
Indemnified Party 11.4
Indemnifying Party 11.4
Preliminary Adjustments Report 3.4.1
Responsible Party 3.4.3
Survival Period 11.1
Section 2. Sale of Assets
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller will sell to
Buyer, and Buyer will purchase from Seller, all of Seller's rights, title and
interest in, to and under the Assets, free and clear of any mortgage, lien,
security interest, security agreement, conditional sale or other title retention
agreement, limitation, pledge, option, restriction, Encumbrance, or exception to
or defect in title. Except as otherwise specifically provided in this Agreement,
all the Assets are intended to be transferred to Buyer, whether or not described
in any schedules or exhibits hereto.
Section 3. Consideration
3.1 Buyer Deposit. Prior to or within ten (10) business days after
execution of this Agreement and subject to the terms of the "Earnest Money
Escrow Agreement", attached hereto as Exhibit A, Buyer will deliver to Commerce
Bank, N.A. (the "Escrow Agent") the sum of Five Hundred Thousand Dollars
($500,000) and together with all interest earned thereon, shall be referred to
herein as the "Buyer Deposit". The Buyer Deposit shall be held by the Escrow
Agent pursuant to the Earnest Money Escrow Agreement, and subject to the
following:
3.1.1 If the purchase of the Assets under this Agreement is not consummated
on or prior to January 15, 1999, or such later date mutually agreed to by the
parties in accordance with this Agreement, as a result of a breach by Buyer of
any of its obligations under this Agreement, Seller shall be entitled to the
Buyer Deposit. The payment of the Buyer Deposit by the Escrow Agent to Seller,
and Seller's receipt thereof, shall (i) be liquidated damages for any and all
defaults by Buyer of its obligations under this Agreement, (ii) be in full
settlement and release of any and all damages of any nature or kind that Seller
suffered or may allege to have suffered as a result of any such breach by Buyer,
and (iii) be Seller's sole and exclusive remedy in the event of any such breach
by Buyer. Seller specifically acknowledges that it will not be entitled to any
of the Buyer Deposit in the event the purchase of the Assets under this
Agreement is not consummated due to the refusal by the National Rural
Telecommunications Cooperative ("NRTC") or DIRECTV, Inc., successor-in-interest
to Hughes Communications Galaxy, Inc., (herein, "DIRECTV") to approve the
transfer of Seller's Member Agreement on terms and conditions acceptable to
Buyer in its sole discretion.
3.1.2 If the purchase of the Assets under this Agreement is not consummated
for any reason other than as set forth in Section 3.1.1, Seller shall not be
entitled to any portion of the Buyer
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Deposit and, promptly after the termination of this Agreement, the entire Buyer
Deposit (together with all interest earned thereon) shall be paid by the Escrow
Agent to Buyer.
3.2 Base Purchase Price. Buyer will pay to Seller the total consideration
of Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000) (the "Base
Purchase Price"), to be paid at the Closing as set forth below, subject to
adjustment as provided in Sections 3.3 and 3.4, and Buyer will assume certain
obligations of Seller as provided in Section 4:
3.2.1 At the Closing, Eight Million Two Thousand Five Hundred Dollars
($8,002,500) or such amount as adjusted pursuant to the terms contained herein,
will be paid to Seller (or to such payees as Seller may designate) by one or
more wire transfers of immediately available funds, in such amounts and to such
Seller or payee accounts as shall be designated by Seller; and
3.2.2 At the Closing, the Buyer Deposit (together with all interest earned
thereon) shall be released to Buyer, and Buyer shall deposit Two Hundred Forty
Seven Thousand Five Hundred Dollars ($247,500) into a new escrow account with
the Escrow Agent in accordance with the Indemnity Escrow Agreement,
substantially in the form and substance of Exhibit B attached hereto, to be
entered into on the Closing Date by Seller, Buyer and the Escrow Agent (the
"Indemnity Escrow Agreement").
3.3 Adjustments to Base Purchase Price. The Base Purchase Price will be
adjusted as follows:
3.3.1 Adjustments on a pro rata basis as of the Closing Date will be made
for all prepaid expenses (to the extent that such prepaid expenses accrue to
Buyer's benefit), prepaid income (which includes, but is not limited to,
unearned revenue) and Accounts Receivable from the sale of Programming Services
of active subscribers that are 60 days or less past due, and to reflect the
principle that all expenses and income attributable to the Business for the
period through the Closing Date are for the account of Seller and all expenses
and income attributable to the Business for the period after the Closing Date
are for the account of Buyer, all in accordance with generally accepted
accounting principles. Seller agrees to offer only advertising promotions and
discounts to customers which are economically feasible and commercially
reasonable given the nature of the Business (unless approved in writing by
Buyer).
3.3.2 Seller will receive no payment for any Accounts Receivable from the
sale of Programming Services which are inactive or whose service is disconnected
for any reason as of December 10, 1998, or for any portion of which is more than
60 days past due as of December 10, 1998. For purposes of calculating
adjustments for Accounts Receivable pursuant to this Subsection, the parties
agree to utilize the most current accounts receivable reporting information
available from the NRTC on December 10, 1998.
3.3.3 Buyer will assume responsibility for honoring all advance payments
to, or funds of third parties on deposit with Seller as of the Closing Date
relating to the Business, including
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advance payments and deposits by subscribers for customer equipment or
Programming Services. Buyer will receive credit therefore with a corresponding
reduction in the Base Purchase Price to offset such obligations.
3.3.4 All deposits relating to the Business that are held by third parties
as of the Closing Date for the account of Seller or as security for Seller's
performance of its obligations including deposits on leases assumed by Buyer and
deposits for utilities, will be credited to the account of Seller in their full
amounts and will become the property of Buyer.
3.4 Determination of Adjustments. Preliminary and final adjustments to the
Base Purchase Price will be determined as follows:
3.4.1 At least five Business Days prior to the Closing Date, Seller will
deliver to Buyer a report (the "Preliminary Adjustments Report"), certified as
to completeness and accuracy by Seller, showing in detail the preliminary
determination of the adjustments referred to in Section 3.3, which are
calculated as of the Closing Date (or as of any other date agreed by the
parties) and any documents substantiating the adjustments proposed in the
Preliminary Adjustments Report. The Preliminary Adjustments Report will include
a schedule setting forth advance payments and deposits made to or by Seller, as
well as Accounts Receivable information relating to the Business (showing sums
due and their respective aging as of the Closing Date). Seller also will furnish
to Buyer its billing report for the most current NRTC billing cycle preceding
the Closing Date. The net adjustment shown in the Preliminary Adjustments Report
will be reflected as an adjustment to the portion of the Base Purchase Price
payable at the Closing. The parties agree that adjustments will be reconciled
either forward or backward, as the case may be, from the most recent NRTC
billing cycle.
3.4.2 Within 60 days after the Closing, Seller will deliver to Buyer a
report (the "Final Adjustments Report"), similarly certified by Seller, showing
in detail the final determination of all adjustments which were not calculated
as of the Closing Date and containing any corrections to the Preliminary
Adjustments Report, together with any documents substantiating the adjustments
proposed in the Final Adjustments Report. Upon not less than 48 hours' notice,
Buyer will give Seller and its representatives full access at reasonable times
to all the premises and books and records of the Business and to all the Assets
which are under the control of Buyer and which are necessary for Seller to
prepare the Final Adjustments Report or as necessary to comply with any law,
regulation, other governmental requirement or any other reasonable business
purpose. Buyer agrees it, its officers and employees will cooperate with and
assist Seller in its reasonable requests for information.
3.4.3 Within 30 days after receipt of the Final Adjustments Report, Buyer
will give Seller written notice of Buyer's objections, if any, to the Final
Adjustments Report. If Buyer makes any such objections, the parties will agree
on the amount, if any, which is not in dispute within 30 days after Seller's
receipt of Buyer's notice of objections to the Final Adjustments Report. Any
undisputed amount will serve as an adjustment to the portion of the Base
Purchase Price payable under Section 3.2.1. The adjustment of the Base Purchase
Price payable under 3.2.1, as so adjusted (but excluding any amounts disputed),
will be paid by Buyer to Seller, or paid by Seller to Buyer,
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whichever the case may be, within 120 days after the Closing Date or within
three Business Days after agreement on the undisputed portion of the Final
Adjustments Report, if later. Any disputed amounts will be determined in
accordance with this Agreement within 180 days after the Closing Date by the
accounting firm of Price Waterhouse, Kansas City, Missouri, (or any other
accounting firm acceptable to both Buyer and Seller), whose determination (the
"Final Determination") will be conclusive. Seller and Buyer will bear the fees
and expenses payable to such firm in connection with such determination in
reverse proportion to the manner in which the disputed amounts are allocated by
the accountants. The payment required after determination of all disputed
amounts (the "Disputed Adjustment Amount") will be made by the responsible party
("Responsible Party") by wire transfer of immediately available funds to the
other party ("Claiming Party") within three Business Days after the date on
which the Final Determination is issued.
3.5 Allocation of Consideration. The consideration payable by Buyer under
this Agreement will be allocated among the Assets as set forth in Schedule 3.5
hereto. Buyer and Seller agree to be bound by the allocation and will not take
any position inconsistent with such allocations and will file all returns and
reports with respect to the transactions contemplated by this Agreement,
including all federal, state and local tax returns, on the basis of such
allocations, including, without limitation, IRS Form 8594. The parties agree
that Schedule 3.5 hereto shall be negotiated and finalized on or prior to the
Closing Date, unless otherwise mutually agreed.
Section 4. Assumed Liabilities and Excluded Assets.
4.1 Assignment and Assumption. Seller will assign, and Buyer will assume
and perform only the Assumed Liabilities, which are defined as: (a) Seller's
obligations to subscribers of the Business for (i) subscriber deposits held by
Seller as of the Closing Date and which are refundable, in the amount for which
Buyer received credit under Section 3.3.3 (ii) subscriber advance payments held
by Seller as of the Closing Date for services to be rendered by the Business
after the Closing Date, in the amount for which Buyer received credit under
Section 3.3.3 and (b) obligations accruing and relating to periods after the
Closing Date under Licenses and Seller Contracts. Buyer will not assume, or have
any responsibility for any liabilities or obligations of Seller other than the
Assumed Liabilities. In no event will Buyer assume or have any responsibility
for any liabilities or obligations associated with the Excluded Assets. Buyer
does not, pursuant to this Agreement or otherwise, agree to perform, pay,
discharge or indemnify Seller against, or otherwise have any responsibility for,
any liabilities or obligations of Seller, fixed, contingent or otherwise,
relating to or arising out of the Seller's operation of the Business, except as
expressly set forth in this paragraph as an Assumed Liability. It is expressly
understood that the parties intend that the Buyer shall not be considered a
successor to Seller by reason of any theory of law or equity or otherwise.
4.2 Excluded Assets. The excluded assets (the "Excluded Assets"), which
will be retained by Seller, will consist of the following: (a) all insurance
policies and rights and claims thereunder; (b) all bonds, letters of credit,
surety instruments and other similar items; (c) all cash, investments, savings
accounts, certificates or other cash equivalents; (d) all of Seller's rights
under any agreement governing or evidencing an obligation of Seller for borrowed
money; (e) all of Seller's rights under
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any contract, license, authorization, agreement or commitment other than those
listed as Seller Contracts (Schedule 1.21 hereto) or those creating or
evidencing Assumed Liabilities; (f) patronage capital certificates and any
patronage dividends; (g) all Real Property of Seller; (h) all personal property
of Seller used in its cable television and telephone businesses; (i) all of
Seller's investments in an equity positions in other corporations, limited
liability companies and partnerships; and (j) all of the assets described on
Schedule 4.2 hereto.
Section 5. Representations and Warranties of Seller.
To induce Buyer to enter into this Agreement, Seller makes the following
representations and warranties to Buyer, as of the date of this Agreement and as
of the Closing:
5.1 Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Iowa, and is authorized to
do business and is in good standing in the State of Nebraska.
5.2 Qualification. Seller has all requisite power and authority to own,
lease and use the Assets as they are currently owned, leased and used and to
conduct the Business as it is currently conducted.
5.3 Authority and Validity. Seller has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by this Agreement. The execution,
delivery and performance by Seller of its obligations under, and the
consummation by Seller of the transactions contemplated by, this Agreement have
been duly authorized by all requisite action, including, without limitation,
approval by Seller's Board of Directors. This Agreement has been duly executed
and delivered by Seller and is a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
5.4 No Breach or Violation. Subject to obtaining the Required Consents, all
of which are listed on Schedule 5.4 hereto, the execution, delivery and
performance of this Agreement by Seller will not (a) violate any provision of
its organization documents; (b) violate any Legal Requirement; (c) require any
consent, approval or authorization of, or any filing with or notice to, any
Person which has not been obtained, or (d) (i) violate, conflict with or
constitute a breach of or default under (without regard to requirements of
notice, passage of time or elections of any Person), (ii) permit or result in
the termination, suspension or modification of, (iii) result in the acceleration
of (or give any person the right to accelerate) the performance of Seller under,
or (iv) result in the creation or imposition of any Encumbrance under, any
Seller Contract or any other instrument evidencing any of the Assets or any
instrument or other agreement to which it is a party or by which it or any of
its assets is bound or affected.
5.5 Assets. Seller has exclusive, good and marketable title to (or in the
case of Assets that are leased, valid leasehold interests in) the Assets (other
than Real Property, as to which the representations and warranties in Section
5.6 apply). The Assets are all of the assets of Seller, other
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than the Excluded Assets, and are free and clear of all Encumbrances of any kind
or nature, except (a) Permitted Encumbrances, (b) restrictions stated in the
Seller Contracts or Licenses and (c) Encumbrances disclosed on Schedule 5.5
hereto which will be removed or otherwise released of record effective at or
prior to the Closing, or for which executed releases in form appropriate for
filing by, and in form acceptable to, Buyer will be delivered to Buyer at
Closing. The Equipment and Inventory are in good and operable condition and
repair, ordinary wear and tear excepted, and are suitable and adequate for
continued use in the manner they are presently used. The Assets are all the
assets necessary to permit Buyer to conduct the Business substantially as it is
currently being conducted on the date of this Agreement.
5.6 Real Property. There is no Real Property being transferred hereunder.
5.7 Environmental Matters. Intentionally deleted.
5.8 Compliance with Laws. The ownership, leasing and use of the Assets as
they are currently owned, leased and used by Seller and the conduct of the
Business as it is currently conducted do not violate any Legal Requirement,
which violation, individually or in the aggregate, would have an adverse effect
on the Business. Seller has not received any notice claiming a violation by it
or the Business of any Legal Requirement applicable to it or the Business as it
is currently conducted and there is no basis for any claim that such a violation
exists.
5.9 Patents, Trademarks and Copyrights. Other than those listed on Schedule
5.9 hereto, Seller does not possess any patent, patent right, trademark or
copyright and there is no application pending with any Governmental Authority
for any of the foregoing. Seller is not a party to any license or royalty
agreement with respect to any patent, trademark or copyright except for licenses
respecting obligations under the Copyright Act of 1976 applicable to the
Business generally. The operations of the Business as currently conducted do not
violate or infringe upon any Person's name, right of privacy, copyright,
trademark, service mark, license, patent, trade secret, or the like, and there
are no suits, claims or proceeding threatened or outstanding with respect to the
same or any facts or circumstances which could substantiate any of the
foregoing.
5.10 Financial Statements. Seller shall deliver to Buyer, immediately after
the execution of this Agreement, copies of its audited 1997 segment balance
sheets and income and expense statements for the most recent fiscal year ended,
together with its unaudited balance sheets and income and expense statements for
the nine months ending September 30, 1998 (collectively, the "Financial
Statements"), which shall be attached hereto as Schedule 5.10. The Financial
Statements are true and correct, have been prepared in accordance with generally
accepted accounting principles, consistently applied, and fairly present
Seller's financial condition and results of operations as of the date and for
the periods indicated. Such Financial Statements have been prepared using the
accrual method of accounting. Since the opening date of the most recent
operating statements included in the Financial Statements, (i) the Business has
been operated only in the ordinary course of business, (ii) it has not sold or
disposed of any Business assets other than in the ordinary course of business,
and (iii) there has been no material adverse change in and no event has occurred
which is likely,
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individually or in the aggregate, to result in any material adverse change in,
the business, operations, assets or condition (financial or otherwise) of the
Business. Except as set forth on Schedule 5.10 hereto or disclosed by, or
reserved against in the most recent balance sheets included in the Financial
Statements, Seller, as of the date of such balance sheet, does not have any
liability or obligation whether accrued or unaccrued, absolute, fixed or
contingent (including liabilities for taxes or unusual forward or long-term
commitments), which was or would be material to the Business or the results of
operations or financial condition of the Business.
5.11 Legal Proceedings. Except as set forth on Schedule 5.11 hereto, there
is no judgment or order outstanding, or any action, suit, complaint, proceeding
or investigation by or before any Governmental Authority or any arbitrator
pending or threatened, involving or affecting all or any part of the Assets or
the Business.
5.12 Tax Returns; Other Reports. (i) Seller has duly and timely filed in
proper form with the appropriate Governmental Authority all income, franchise,
sales, use, property, excise, payroll and other tax returns, and all other
reports (whether or not relating to taxes), required to be filed with respect to
the Business; (ii) all taxes, fees and assessments, including, without
limitation, any interest and penalties with respect thereto, of whatever nature
due and payable by Seller with respect to the Business have been paid, except
such amounts as are being contested diligently and in good faith and are not in
the aggregate material; and (iii) there are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any federal, state,
local or foreign income tax return for any period and there are no tax audits
pending.
5.13 Employment Matters.
5.13.1 Seller has no employment agreement of any kind, oral or written,
express or implied, that would require Buyer to employ any Person after the
Closing Date. Seller is in compliance with all federal and state laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours and is not engaged in, nor has it committed, any unfair labor
practice as defined in the National Labor Relations Act of 1947, as amended.
Seller has not received any notice of violation of any Legal Requirement
relating to the employment of labor.
5.13.2 Seller shall continue its existence and operate to the fullest
extent necessary to comply with all Legal Requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended. Buyer shall not
assume or be responsible for any COBRA requirements or obligations of Seller.
5.13.3 Seller acknowledges and agrees that all existing and potential
liabilities, obligations, responsibilities or duties relating to any Plan shall
not be assumed by Buyer and shall remain the sole and exclusive liability,
obligation, responsibility or duty of Seller, its ERISA Affiliates or any
fiduciary or plan administrator, as the case may be, of such Plan. The term
"Plan" shall mean any pension, profit sharing, thrift or other retirement plan,
employee stock ownership plan, deferred
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compensation, stock option, stock purchase, performance, share, bonus or other
incentive plan, severance plan, health, group insurance, cafeteria or other
welfare plan, or other similar plan, agreement, policy or understanding,
including, without limitation, any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), under which Seller, or any Person or trade or business under common
control with Seller (an "ERISA Affiliate"), as determined under Section 414(b),
(c) or (m) of the Internal Revenue Code of 1986, as amended, has any current or
future obligation or liability or under which any present or former employee of
Seller or an ERISA Affiliate, or such present or former employee's dependents or
beneficiaries, has any current or future right to benefits.
5.13.4 No present or former employee of Seller has, or will as of the
Closing Date have, any claim against Seller (whether under federal, state or
local law, any employment agreement, or otherwise) on account of or for (a)
overtime pay, other than overtime pay for the then current payroll period, (b)
wages or salary for any period other than the current payroll period, (c)
vacation, time off or pay in lieu of vacation or time off, other than that
earned in respect of the current fiscal year or accrued on Seller's books and
records, or (d) any violation of any statute, ordinance or regulation relating
to minimum wages or maximum hours of work. All amounts required to be withheld
by Seller from its employees have been properly withheld and will be timely
deposited and all contributions required to be paid by Seller in respect of its
employees have been paid in accordance with the applicable provisions of
federal, state and local laws regarding income tax withholding and social
security, workers compensation, unemployment compensation or similar taxes or
contributions. Seller has no direct or indirect, express or implied, obligation
to pay severance or termination pay to any officer or employee of Seller or to
pay any amounts to any consultant, agent or similar person or entity. All claims
of any employee against Seller arising or incurred on or prior to the date of
Closing will remain the responsibility of Seller, whether or not the respective
employee is hired by Buyer on or after Closing.
5.13.5 Seller has not received any notice from any Person or federal,
state, or local Governmental Authority or official notifying it that Seller or
any property or asset of Seller is in violation of, or in noncompliance with,
the Americans with Disabilities Act (the "ADA"). Seller has not received any
notice of a claim or potential claim under the Civil Rights Act of 1991 for any
violation of the ADA.
5.14 Revenue. Seller has at least $136,500 of total gross monthly revenue
from the sale of Programming Services as reported on NRTC Report 17, from the
most recent NRTC billing cycle prior to this Agreement. Seller does not maintain
any accounts with Huntington National Bank.
5.15 System Data. As of October, 1992, Seller has the right to provide
Programming Services to approximately 24,392 homes, 16,135 of which do not have
access to a cable television provider(s) and 8,257 of which have access to a
cable television provider. Schedule 1.4 hereto sets forth rates charged by
Seller for satellite services, rate history with dates and amounts of rate
increases for those services, breakdown of the channel packages sold, and a
general description of marketing promotions and discounts offered to subscribers
since January 1, 1997, and those which will affect the Business
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after the Closing Date.
5.16 Finders and Brokers. Seller will be responsible for payment of any
finder's commission or similar fee to any financial advisor, broker or finder it
has retained for any financial advice or brokerage services in connection with
the transactions contemplated by this Agreement.
5.17 Disclosure. No representation or warranty made by Seller in this
Agreement or in any Schedule or Exhibit to this Agreement, or any statement,
list or certificate furnished or to be furnished by it pursuant to this
Agreement, contains or will contain any untrue statement of material fact, or
omits or will omit any material fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances in which made. Without limiting the generality of the foregoing,
the information set forth in Schedule 1.4 hereto concerning the Business is
accurate and complete in all material respects.
5.18 Seller Contracts. Schedule 1.21 hereto contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all Seller Contracts. Except as set forth in Schedule 1.21: (i) each Seller
Contract is in full force and effect and is valid and enforceable in accordance
with its terms; (ii) Seller is, and at all times has been, in full compliance
with all applicable terms and requirements of each Seller Contract under which
Seller has or had any obligation or liability or by which Seller or any of the
Assets is or was bound; (iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give Seller or other Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Seller Contract; and
(iv) Seller has not given or received from any other Person, at any time any
notice or other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default under, any
Seller Contract. Seller currently holds the Member Agreement which gives Seller
exclusive rights to provide Programming Services to homes in the Service Area,
and such agreement is in full force and effect with no defaults thereunder.
Section 6. Representations and Warranties of Buyer.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller as of the date of this Agreement and as of the Closing, as
follows:
6.1 Organization and Qualification. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to carry on its business as currently
conducted and to own, lease, use and operate its assets.
6.2 Authority and Validity. Buyer has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. The execution and
delivery by Buyer of, the performance by Buyer of its obligations
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under, and the consummation by Buyer of the transactions contemplated by, this
Agreement have been duly authorized by all requisite corporate action of Buyer
and this Agreement constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms.
6.3 No Breach or Violation . Subject to obtaining the Required Consents,
all of which are listed on Schedule 5.4 hereto, the execution, delivery and
performance of this Agreement by Buyer will not: (a) violate any provision of
the charter or bylaws of Buyer; (b) violate any Legal Requirement; (c) require
any consent, approval or authorization of, or any filing with or notice to, any
Person, which has not been obtained or (d) (i) violate, conflict with or
constitute a breach of or default under (without regard to requirements of
notice, passage of time or elections of any Person), (ii) permit or result in
the termination, suspension or modification of (iii) result in the acceleration
of (or give any Person the right to accelerate) the performance of Buyer under,
or (iv) result in the creation or imposition of any Encumbrance under, any
instrument or other agreement to which Buyer is a party or by which Buyer or any
of its assets is bound or affected, except for purposes of this clause (d) such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications, and accelerations as would not, individually or in the aggregate
have a material adverse effect on Buyer or on the validity, binding effect or
enforceability of this Agreement.
6.4 Disclosure. No representation or warranty by Buyer in this Agreement or
Exhibit to this Agreement, or any statement or certificate furnished or to be
furnished by Buyer pursuant to this Agreement, contains or will contain any
untrue statement of material fact, or omits or will omit any material fact
required to be stated therein or necessary to make the statements contained
therein not misleading in light of the circumstances in which made.
Section 7. Additional Covenants.
7.1 Access to Premises and Records. Between the date of this Agreement and
the Closing Date, and upon not less than 48 hours' notice, Seller will give
Buyer and its representatives full access at reasonable times to all the
premises and books and records of the Business and to all the Assets which are
under the control of Seller and will furnish to Buyer and its representatives
all information regarding the Business and the Assets as Buyer may from time to
time reasonably request. Seller agrees it, its officers and employees will
cooperate with and assist Buyer in its reasonable requests for information.
7.2 Continuity and Maintenance of Operations; Financial Statements. Except
as Buyer may otherwise agree in writing, until the Closing:
7.2.1 Seller will continue to operate its business in the ordinary course
consistent with past practices and will use its best efforts to keep available
the services of its employees employed in connection with the Business and to
preserve any beneficial business relationships with customers, suppliers and
others having business dealings with the Seller relating to the Business.
Without limiting the generality of the foregoing, Seller will maintain the
Assets in good condition and repair, will
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maintain adequate inventories of Equipment consistent with past practice, will
maintain insurance as in effect on the date of this Agreement, and will keep all
of its business books, records and files in the ordinary course of business all
in accordance with past practices. Seller will not itself, and nor will it
permit any of its officers, directors, shareholders, agents or employees to, pay
any of the subscriber accounts receivable prior to the Closing Date. Seller will
continue to implement its procedures for disconnection and discontinuance of
service to subscribers whose accounts are delinquent in accordance with those in
effect on the date of this Agreement. Buyer will operate the Business pursuant
to the Management Agreement in the ordinary course consistent with Buyer's past
practices.
7.2.2 Seller agrees it will not: (a) make any material business decisions
which could adversely affect the Business or the Assets; (b) change the rates
charged for Programming Services from those listed on Schedule 1.4 hereto except
as suggested by the NRTC in writing; (c) sell, transfer or assign any of the
Assets (other than in the ordinary course of business) or permit the creation of
any material Encumbrance on any Asset; (d) permit the amendment or cancellation
of any License or Seller Contract or any other material contract or agreement
(other than those constituting Excluded Assets) which affects or is applicable
to the Business; (e) enter into any contract or commitment or incur any
indebtedness or other liability or obligation of any kind relating to the
Business involving an expenditure which, in the aggregate, would exceed $50,000,
if such contract, commitment, indebtedness, liability or obligation, by its
terms, will survive the Closing; or (f) take or omit to take any action that
would cause Seller to be in breach of any of its representations or warranties
in this Agreement. Notwithstanding the foregoing, Seller may, at any time prior
to or at the Closing, transfer, distribute, assign or sell to any Person, or
retain for Seller's own account, any or all of the Excluded Assets (none of
which are to be transferred to Buyer at the Closing). No adjustment shall be
made to the Base Purchase Price by reason of the distribution, transfer,
assignment or sale or retention by Seller of the Excluded Assets, unless such
action results in any adjustment under Section 3.3.
7.2.3 Up to and through the Closing, Seller agrees to cooperate with Buyer
in providing all necessary information for Buyer's accountants to prepare
audited cash flow, balance sheets and income and expense statements for the
Business for the time periods required by Buyer.
7.3 Leased Equipment. Seller will pay the remaining balances on any leases
for Equipment used in the Business, if any, and deliver title to such Equipment
free and clear of all Encumbrances to Buyer at the Closing.
7.4 Required Consents.
7.4.1 Within ten (10) business days after execution of this Agreement,
Buyer and Seller shall submit to the NRTC, and thereafter, as required by the
NRTC, to DIRECTV, an application to transfer to Buyer the Member Agreement. Each
of the parties will take all additional action that may be necessary, proper or
advisable and will furnish each other such necessary information and reasonable
assistance as the other may reasonably request in connection with its
preparation of filings or submissions required by either the NRTC or DIRECTV.
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7.4.2 Seller and Buyer agree to use their best efforts to obtain all
Required Consents, but Buyer will not be required to agree to any material
adverse changes in, or the imposition of any material adverse condition upon the
transfer to Buyer of any Seller Contract or License as a condition to obtaining
any Required Consent. Seller will use its best efforts to obtain, at its
expense, such estoppel certificates or similar documents from lessors and other
Persons who are parties to Seller Contracts as Buyer may reasonably request.
7.5 No Shopping. Neither Seller nor any employee, agent or representative
of Seller will, during the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing or the termination of this
Agreement, directly or indirectly (a) solicit or initiate the submission of
proposals or offers from any Person for, (b) participate in any discussions
pertaining to, or (c) furnish any information to any Person other than Buyer
relating to, any direct or indirect acquisitions or purchase of all or any
portion of the Assets or the securities of Seller, whether by purchase, merger
or otherwise, or any such business combination. The Seller shall cause their
respective officers, employees, representatives, agents and affiliates to
refrain from doing any of the foregoing.
7.6 Notification of Certain Matters. Seller will promptly notify Buyer of
any fact, event, circumstance or action (a) which, if known to Seller on the
date of this Agreement, would have been required to be disclosed by Seller to
Buyer pursuant to this Agreement, or (b) the existence or occurrence of which
would cause any of Seller's representations or warranties under this Agreement
not to be correct; and Buyer will promptly notify Seller of any fact, event,
circumstance or action (a) which, if known to Buyer on the date of this
Agreement, would have been required to be disclosed by Buyer to Seller pursuant
to this Agreement, or (b) the existence or occurrence of which would cause any
of Buyer's representations or warranties under this Agreement not to be correct.
7.7 Risk of Loss. Seller will maintain up to and through the Closing Date,
present policies of insurance covering the Assets. Seller will bear the risk of
any loss or damage to the Assets resulting from fire, theft or other casualty
(except reasonable wear and tear) at all times prior to the Closing. If any such
loss or damage is so substantial as to prevent normal operation of any material
portion of the Business or the replacement or restoration of the lost or damaged
property within 20 days after the occurrence of the event resulting in such loss
or damage, Seller will promptly notify Buyer of that fact and Buyer, at any time
within 10 days after receipt of such notice, may elect by written notice to
Seller either (i) to terminate this Agreement, in which case, Buyer and Seller
will be discharged of any and all obligations hereunder and, in such case, Buyer
shall be entitled to the Buyer Deposit, or (ii) proceed to consummate the
transactions contemplated by this Agreement. If Buyer elects to consummate the
transactions contemplated by this Agreement notwithstanding such loss or damage
and does so, there will be no adjustment in the consideration payable to Seller
on account of such loss or damage but all insurance proceeds payable as a result
of the occurrence of the event resulting in such loss or damage will be
delivered by Seller to Buyer, or the rights to such proceeds will be assigned by
Seller to Buyer if not yet paid over to Seller.
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7.8 Transfer Taxes. In the event that any Governmental Authority shall at
any time impose or otherwise require or demand payment by or from either Seller
or Buyer of any state or local sales, use, transfer, excise, documentary or
license taxes or fees or any other charge (including filing fees) with respect
to Seller's sale or transfer to Buyer of the Assets, Seller and Buyer shall
equally share the responsibility for payment of such amounts.
7.9 Non-Competition Agreements. At the Closing, Seller shall sign and
deliver to Buyer a Non-Competition Agreement substantially in the form of
Exhibit F-1, attached hereto and incorporated herein by reference. The
consideration for the Non-Competition Agreement executed by Seller shall be
allocated as part of the purchase price paid to Seller in accordance with
Section 3.5 above. At the Closing, Buyer shall sign and deliver to Seller a
NonCompetition Agreement substantially in the form of Exhibit F-2, attached
hereto and incorporated herein by reference.
7.10 Updated Schedules. Not less than five business days prior to Closing,
Seller will deliver to Buyer revised copies of Schedules which shall have been
updated to show any changes occurring between the date of this Agreement and the
date of delivery; provided, however, that for purposes of Seller's
representations and warranties and covenants in this Agreement, all references
to the Schedules will mean the version of the Schedules attached to this
Agreement on the date of signing, and provided further that if the effect of any
such updates to Schedules is to disclose any one or more additional properties,
privileges, rights, interests or claims as Assets, or disclose previously
undisclosed liabilities, Buyer, at or before Closing, will have the right (to be
exercised by notice to Seller) to cause any one or more of such items to be
designated as and deemed to constitute Excluded Assets for all purposes under
this Agreement. Notwithstanding the foregoing, in the event any update to one or
more Schedules is determined by Buyer in its reasonable discretion to materially
affect the Business or the Assets, Buyer may, at its option: (i) proceed with
consummating the transaction hereunder with a corresponding reduction in the
Purchase Price which Buyer and Seller agree upon; or (ii) refuse to consummate
the transaction hereunder, and in no event shall either option constitute a
breach by Buyer of this Agreement nor entitle Seller to any of the Buyer
Deposit.
7.11 Satisfaction of Conditions. Each party will use its reasonable best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 9, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect any of the
Assets or Assumed Liabilities.
7.12 Confidentiality. No party, nor their respective officers, employees,
trustees, agents, representatives or affiliates, will issue any press release or
make any other public announcement regarding this Agreement or the transactions
contemplated hereby without the consent of the other parties. Each party will
hold, and will cause its employees, consultants, advisors and agents to hold, in
confidence, the terms of this Agreement and any non-public information
concerning the other party obtained pursuant to this Agreement. Notwithstanding
the preceding, (i) a party may disclose such information to the extent required
by any Legal Requirement (including disclosure requirements under federal and
state securities laws), but the party proposing to disclose such information
will first notify
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and consult with the other party concerning the proposed disclosure, to the
extent reasonably feasible; and (ii) after the Closing, Seller may disclose the
terms of this Agreement to its shareholders. Each party also may disclose such
information to employees, consultants, advisors, agents and actual or potential
lenders whose knowledge is necessary to facilitate the consummation of the
transactions contemplated by this Agreement. Each party's obligation to hold
information in confidence will be satisfied if it exercises the same care with
respect to such information as it would exercise to preserve the confidentiality
of its own similar information.
7.13 Transition. Seller shall cooperate in good faith with Buyer to assure
a smooth transition of the Assets and operation of the Business after Closing.
In connection with the foregoing, Seller agrees to continue to accept payment of
Accounts Receivable for the benefit of Buyer for a period of ninety (90) days
after Closing and shall submit all such payments to Buyer within five (5) days
of receipt of the same. Seller shall not, without the prior written consent of
Buyer, take any action to collect any Accounts Receivable after Closing, other
than as set forth in this Section 7.13. Seller and Buyer shall execute the
Management Agreement immediately after the execution of this Agreement, such
agreement to be effective December 10, 1998.
Section 8. Closing.
The date of Closing will be designated by Buyer and Seller, but shall not
occur earlier than January 4, 1998 or later than January 15, 1999, unless
mutually extended by the parties. The Closing will be held in the offices of
Polsinelli, White, Vardeman & Shalton, P.C. at 700 West 47th Street, Suite 1000,
Kansas City, Missouri or such other place as Buyer and Seller may agree.
Section 9. Conditions to Closing.
9.1 Conditions to the Obligations of Buyer and Seller. The obligations of
each party to consummate the transactions contemplated by this Agreement to take
place at the Closing are subject to the satisfaction or waiver to the extent
permitted by applicable Legal Requirements, at or prior to the Closing Date, of
each of the following conditions:
9.1.1 No action, suit or proceeding is pending or threatened by or before
any Governmental Authority and no Legal Requirement has been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by a Governmental Authority, which would (a)
prohibit Buyer's ownership of the Business or the Assets, (b) compel Buyer to
dispose of or hold separate all or a material portion of the Business or the
Assets as a result of any of the transactions contemplated by this Agreement, or
(c) prevent or make illegal the consummation of any transactions contemplated by
this Agreement.
9.2 Conditions to the Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver, to the extent permitted by
applicable Legal Requirements, at or prior to the
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Closing Date, of each of the following conditions:
9.2.1 All representations and warranties of Seller contained in this
Agreement are, if not specifically qualified by materiality, true in all
respects and, if so qualified, are true in all material respects, in each case
on and as of the Closing Date with the same effect as if made on and as of the
Closing Date, except for changes specifically permitted or contemplated by this
Agreement.
9.2.2 Seller has performed and complied in all material respects with each
obligation, agreement, covenant and condition required by this Agreement to be
performed or complied with by Seller at or prior to the Closing.
9.2.3 Seller has executed (or caused to be executed) and delivered to Buyer
each of the following items:
(a) the Earnest Money Escrow Agreement;
(b) the Indemnity Escrow Agreement substantially in the form attached
hereto as Exhibit B;
(c) the Bill of Sale substantially in the form attached hereto as
Exhibit C;
(d) the Assignment and Assumption of Contracts Agreement substantially
in the form attached hereto as Exhibit D;
(e) the Assignment and Assumption of Equipment Rental Agreements
substantially in the form attached hereto as Exhibit E;
(f) Non-Competition Agreements signed by Seller and Buyer in the form
attached hereto as Exhibits F-1 and F-2;
(g) an opinion letter from Seller's legal counsel dated the Closing
Date substantially in the form attached hereto as Exhibit G (the final
opinion letter must be approved by Buyer at least two (2) days prior to
Closing);
(h) certificates of good standing for Seller from the Iowa and
Nebraska Secretaries of State; and
(i) motor vehicle title certificates and such other transfer
instruments as Buyer may reasonably deem necessary or advisable to transfer
the Assets to Buyer and to perfect Buyer's rights in the Assets.
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9.2.4 Seller has delivered to Buyer: (a) evidence, in form and substance
satisfactory to Buyer, that all of the Required Consents have been obtained or
given on terms and conditions acceptable to Buyer in its sole discretion and are
in full force and effect, including without limitation approval of the transfer
to Buyer of the Member Agreement on terms and conditions acceptable to Buyer in
its sole discretion; and (b) to the extent obtained by Seller, the estoppel
certificates or similar documents described in Section 7.4; and (c) evidence, in
form and substance satisfactory to Buyer, from the NRTC that all invoices due
have been paid and Seller is not in default with the NRTC.
9.2.5 No action, proceeding or investigation has been instituted or
threatened prior to Closing by or before any court or Governmental Authority
which would, if determined adversely to Buyer's interest, materially impair the
ability of Buyer to realize the benefits of the transactions contemplated by
this Agreement. Nothing in this Section 9 shall be construed so as to give Buyer
any unfair option to delay or avoid closing on this transaction and in any
event, there must be a reasonable basis supported by fact to invoke the
protection of this provision.
9.2.6 Seller has delivered releases, in form reasonably satisfactory to
Buyer, of all Encumbrances affecting any of the Assets (other than Permitted
Encumbrances) and, to the extent that the relevant jurisdictions provide them, a
certificate of no taxes due with respect to Seller and the Assets issued by
appropriate state taxing authorities as of a date no earlier than 10 days prior
to the Closing, or, if no such certificate is available, a certificate signed by
the chief financial officer of Seller stating that all taxes currently due have
been paid in full.
9.2.7 Seller has delivered to Buyer: (a) a certificate, dated the Closing
Date, signed by Seller's chief executive officer, stating that to the best of
his knowledge in his corporate capacity the conditions set forth in Sections
9.2.1 and 9.2.2 are satisfied; (b) a copy of the resolutions of the board of
directors of Seller authorizing the execution, delivery and performance of this
Agreement by Seller, and a certificate of Seller, dated as of the Closing, that
such resolutions were duly adopted and are in full force and effect as of the
date of Closing; and (c) such other documents as Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
9.3 Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver by Seller, to the extent
permitted by applicable Legal Requirement, at or prior to the Closing Date, of
each of the following conditions:
9.3.1 Buyer has paid the Base Purchase Price required to be paid at the
Closing, as adjusted in accordance with this Agreement.
9.3.2 All representations and warranties of Buyer contained in this
Agreement are, if not specifically qualified by materiality, true and correct in
all respects and, if so qualified, are true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, except for changes specifically permitted or
contemplated
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by this Agreement.
9.3.3 Buyer in all material respects has performed and complied with each
obligation, agreement, covenant and condition required by this Agreement to be
performed or complied with by Buyer at or prior to the Closing.
9.3.4 Buyer has executed and delivered to Seller each of the following
items:
(a) the Earnest Money Escrow Agreement;
(b) the Indemnity Escrow Agreement substantially in the form attached
hereto as Exhibit B;
(c) the Assignment and Assumption of Contracts Agreement substantially
in the form attached hereto as Exhibit D;
(d) the Assignment and Assumption of Equipment Rental Agreements
substantially in the form attached hereto as Exhibit E; and
(e) Non-Competition Agreements substantially in the form attached
hereto as Exhibits F-1 and F-2.
9.3.5 Buyer has delivered to Seller the following: (a) a certificate, dated
the Closing Date, signed by the chief executive officer of Buyer, stating that
to the best of his knowledge in his corporate capacity, the conditions set forth
in Sections 9.3.2 and 9.3.3 are satisfied; (b) a copy of the resolutions of the
board of directors of Buyer authorizing the execution, delivery and performance
of this Agreement by Buyer, and a certificate of Buyer, dated as of the Closing,
that such resolutions were duly adopted and are in full force and effect as of
the date of Closing; and (c) such other documents as Seller may reasonably
request in connection with the transactions contemplated by this Agreement.
9.4 Waiver of Conditions. Any party may waive in writing any or all of the
conditions to its obligations under this Agreement.
Section 10. Termination.
10.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing:
(a) by the mutual written consent of Buyer and Seller; or
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(b) by Buyer or Seller, if the transactions contemplated by this
Agreement to take place at the Closing have not been consummated on or
before January 15, 1999, other than as extended by mutual agreement of the
parties, provided, however, that if the failure to consummate the
transactions is the result of (i) a breach or default by such party in the
performance of any of its obligations under this Agreement or (ii) the
failure of any representation or warranty of such party to be accurate,
then subject to the terms of Section 3.1 hereof, the termination of this
Agreement shall not limit the right of the other party to pursue an action
for damages resulting from such breach or failure except that Buyer and
Seller will have no liability in any event if, for any reason whatsoever,
the NRTC or DIRECTV do not approve transfer to Buyer of Seller's Member
Agreement, provided the entire Buyer Deposit is returned to Buyer without
offset or reduction; or
(c) by Buyer under the conditions described in Section 7.7 above.
10.2 Liabilities in Event of Termination. Subject to the provisions of
Section 3.1, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement, except that Buyer will have
no liability in any event upon exercise of its right to terminate pursuant to
Section 10.1(c).
10.3 Procedure Upon Termination. In the event of the termination of this
Agreement by Buyer or Seller pursuant to this Section 10, notice of such
termination will promptly be given by the terminating party to the other.
Section 11. Survival of Representations and Warranties; Indemnification.
11.1 Survival of Representations and Warranties. The representations and
warranties of Seller in this Agreement and in the documents and instruments to
be delivered by Seller pursuant to this Agreement will survive the Closing
without limitation until the first anniversary of the Closing Date, except that
all such representations and warranties with respect to any federal, state or
local taxes, title, litigation, Environmental Law or copyright matter will
survive until the expiration of the applicable statute of limitations (including
any extensions) for such federal, state or local taxes, title, litigation,
Environmental Law or copyright matter, respectively. The representations and
warranties of Buyer in this Agreement and in the documents and instruments to be
delivered by Buyer pursuant to this Agreement will survive the Closing without
limitation until the first anniversary of the Closing Date. The periods of
survival of the representations and warranties prescribed by this Section 11.1
are referred to as the "Survival Period". The liabilities of the parties under
their respective representations and warranties will expire as of the expiration
of the applicable Survival Period; provided, however, that such expiration will
not include, extend or apply to any representation or warranty, the breach of
which has been asserted by Buyer in written notice to Seller before such
expiration or about which Seller has given Buyer written notice before such
expiration indicating the facts or conditions existing that, with the passage of
time or otherwise, can reasonably be expected to result in a breach (and
describing such potential breach in reasonable detail). All covenants of Seller
and Buyer in this Agreement shall survive the Closing.
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11.2 Indemnification by Seller. Seller will indemnify, defend and hold
harmless Buyer and its shareholders and its and their respective Affiliates; and
the shareholders, directors, officers, employees, agents, successors and assigns
of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or obligations of
or to Buyer resulting from or arising out of (i) any breach of any then
surviving representation or warranty made by Seller in this Agreement, (ii)
any breach of any covenant, agreement or obligation of Seller contained in
this Agreement, (iii) any third party claim with respect to any act or
omission of Seller with respect to Seller's operation of the Assets or
Seller's conduct of the Business, which act or omission occurred prior to
or on the Closing Date without regard to whether such third party claim
with respect to such act or omission is asserted before or after the
Closing Date, including any matter described on Schedule 5.10 hereto and
including all taxes of Seller relating to the Business, (iv) any liability
or obligation of Seller not included in the Assumed Liabilities, (v) any
claim that the transactions contemplated by this Agreement violate any
fraudulent conveyance laws of any jurisdiction, (vi) Seller's failure to
deliver any Required Consent to Buyer, notwithstanding that Buyer shall
have consented to close in the absence of any such Required Consent; (vii)
any liability or obligation of Buyer relating to the parties noncompliance
with any applicable bulk sales laws, including without limitation, bulk
sales laws under the Uniform Commercial Code; and (viii) any claim relating
in any manner to the operation of the Business prior to and on the Closing
Date; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including,
without limitation, settlement costs and reasonable legal, accounting,
experts' and other fees, costs and expenses) incident or relating to or
resulting from any of the foregoing.
11.3 Indemnification by Buyer. Buyer will indemnify, defend and hold
harmless Seller and its shareholders and its and their respective Affiliates,
and the shareholders, directors, officers, employees, agents, successors and
assigns of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or obligations of
or to Seller or any such other indemnified Person resulting from or arising
out of (i) any breach of any representation or warranty made by Buyer in
this Agreement, (ii) the breach of any covenant, agreement or obligation of
Buyer contained in this Agreement or (iii) the failure by Buyer to perform
any of its obligations in respect of the Assumed Liabilities; and (iv) any
third party claim with respect to any act or omission of Buyer with respect
to Buyer's operation of the Assets or Buyer's conduct of the Business,
which act or omission occurred after the Closing Date; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including,
without limitation, settlement costs and reasonable legal, accounting,
experts' and other fees, costs and expenses) incident or relating to or
resulting from any of the foregoing.
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11.4 Third Party Claims. Promptly (and in any event within 30 days) after
the receipt by any party of notice of any claim, action, suit or proceeding by
any Person who is not a party to this Agreement (collectively, an "Action"),
which Action is subject to indemnification under this Agreement, such party (the
"Indemnified Party") will give reasonable written notice to the party from whom
indemnification is claimed (the "Indemnifying Party"). The Indemnified Party
will be entitled, at the sole expense and liability of the Indemnifying Party,
to exercise full control of the defense, compromise or settlement of any such
Action unless the Indemnifying Party, within a reasonable time (and in any event
within 30 days) after the giving of such notice by the Indemnified Party, (a)
admits in writing to the Indemnified Party the Indemnifying Party's liability to
the Indemnified Party for such Action under the terms of this Section 11, (b)
notifies the Indemnified Party in writing of the Indemnifying Party's intention
to assume such defense, (c) provides evidence reasonably satisfactory to the
Indemnified Party of the Indemnifying Party's ability to pay the amount, if any,
for which the Indemnified Party may be liable as a result of such Action, and
(d) retains legal counsel reasonably satisfactory to the Indemnified Party to
conduct the defense of such Action. The other party will cooperate with the
party assuming the defense, compromise or settlement of any such Action in
accordance with this Agreement in any reasonable manner. The Indemnified Party
will have the right to employ separate counsel and to participate in (but not
control) the defense, compromise or settlement of the Action, but the fees and
expenses of such counsel will be at the expense of the Indemnified Party unless
(i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) any
relief other than the payment of money damages is sought against the Indemnified
Party or (iii) the Indemnified Party will have been advised by its counsel that
there may be one or more defenses available to it which are different from or
additional to those available to the Indemnifying Party, and in any such case
that portion of the fees and expenses of such separate counsel that are
reasonably related to matters covered by the indemnity provided in this Section
11 will be paid by the Indemnifying Party. No Indemnified Party will settle or
compromise any such Action for which it is entitled to indemnification under
this Agreement without prior written consent of the Indemnifying Party, unless
the Indemnifying Party has failed, after reasonable notice, to undertake control
of such Action in the manner provided in this Section 11.4. No Indemnifying
Party will settle or compromise any such Action (A) in which any relief other
than the payment of money damages is sought against any Indemnified Party or (B)
in the case of any Action relating to the Indemnified Party's liability for any
tax, if the effect of such settlement would be an increase in the liability of
the Indemnified Party for the payment of any tax for any period beginning after
the Closing Date, unless the Indemnified Party consents in writing to such
compromise or settlement.
Section 12. Miscellaneous.
12.1 Parties Obligated and Benefited. Subject to the limitations set forth
below, this Agreement will be binding upon the parties and their respective
assigns and successors in interest and will inure solely to the benefit of the
parties and their respective assigns and successors in interest, and no other
Person will be entitled to any of the benefits conferred by this Agreement.
Without the prior written consent of the Buyer, Seller will not assign any of
its rights under this Agreement or delegate any of its duties under this
Agreement.
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12.2 Notices. Any notice, request, demand, waiver or other communication
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or sent by
first class, prepaid, registered or certified mail (return receipt requested),
or delivered by commercial courier (e.g., United Parcel Service or Federal
Express) or, if receipt is confirmed, by telecopier:
To Buyer at: Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, MO 64112
Attention: Rodney A. Weary, President and
Jo Ellen Linn, Corporate Counsel
Telephone: (816) 753-5544
Telecopy: (816) 753-5595
With a copy (which will not constitute notice) transmitted by telecopier
to:
Polsinelli, White, Vardeman & Shalton, P.C.
700 West 47th Street, Suite 1000
Kansas City, MO 64112
Attention: Gerald W. Brenneman, Esq. and
Edward N. Foster, Esq.
Telephone: (816) 753-1000
Telecopy: (816) 753-1536
To Seller at: Breda Telephone Corporation
Highway 217 East
P.O. Box 190
Breda, Iowa 51436-0190
Attention: Bob Boeckman
Telephone: (712) 673-2311
Telecopy: (712) 673-2800
With a copy (which will not constitute notice) transmitted by telecopier
to:
Wilcox, Polking, Gerken, Schwarzkopf, Hoyt & Copeland, P.C.
115 E. Lincolnway, Suite 200
Jefferson, IA 50129-2149
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Attention: Thomas W. Polking, Esq.
Telephone: (515) 386-3158
Telecopy: (515) 386-8531
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 12.2. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
12.3 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any alleged breach by any party of any representation, warranty,
covenant or agreement contained in this Agreement, the prevailing party will be
entitled to recover reasonable attorneys' fees and other costs of such action or
suit from the other party.
12.4 Right to Specific Performance. Seller acknowledges that the unique
nature of the Assets to be purchased by Buyer pursuant to this Agreement renders
money damages an inadequate remedy for the breach by Seller of its obligations
under this Agreement, and Seller agrees that in the event of such breach, Buyer
will upon proper action instituted by it, be entitled to a decree of specific
performance of this Agreement.
12.5 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.6 Captions. The article and section captions of this Agreement are for
convenience only and do not constitute a part of this Agreement.
12.7 Choice of Law. This Agreement and the rights of the parties under it
will be governed and construed in all respects in accordance with the laws of
the State of Iowa. The appropriate jurisdiction and venue in connection with the
interpretation of any disputes concerning this Agreement will be in the District
Court of Carroll County, Iowa. Seller and Buyer hereby waive any and all
right(s) to remove any dispute concerning this Agreement to Federal Court.
12.8 Terms. Terms used with initial capital letters will have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. The word "include" and derivatives of that word are used in this
Agreement in an illustrative sense rather than a limiting sense.
12.9 Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
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12.10 Further Actions. Seller and Buyer will execute and deliver to the
other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents, assurances
or things as may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights accorded and
acquired by it under this Agreement.
12.11 Time. Time is of the essence under this Agreement. If the last day
permitted for the giving of any notice or the performance of any act required or
permitted under this Agreement falls on a day which is not a Business Day, the
time for the giving of such notice or the performance of such act will be
extended to the next succeeding Business Day.
12.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original.
12.13 Entire Agreement. This Agreement (including the Schedules and
Exhibits referred to in this Agreement, which are incorporated in and constitute
a part of this Agreement) contains the entire agreement of the parties and
supersedes all prior oral or written agreements and understandings with respect
to the subject matter herein. This Agreement may not be amended or modified
except by a writing signed by the parties.
12.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefited by such provision or any other provisions
of this Agreement.
12.15 Construction. This Agreement has been negotiated by Buyer and Seller
and its respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement will not apply in any construction or
interpretation of this Agreement.
12.16 Late Payments. If either party fails to pay the other any amounts
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the annual rate publicly announced from time to
time by Citibank, N.A. at its prime rate (the "Prime Rate") plus 3%, adjusted as
and when changes in the Prime Rate are made.
12.17 Expenses. Except as otherwise expressly provided in this Agreement,
each party will pay all of its expenses, including attorneys' and accountants'
fees, in connection with the negotiation of this Agreement, the performance of
its obligations and the consummation of the transactions contemplated by this
Agreement.
The parties have executed this Agreement as of the day and year first above
written.
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SELLER:
Breda Telephone Corporation
By: /s/ Dean Schettler
----------------------------------
Dean Schettler, President
BUYER:
Golden Sky Systems, Inc.
By: /s/ Rodney A. Weary
----------------------------------
Rodney A. Weary, President
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EXHIBIT LIST
Exhibit A Earnest Money Escrow Agreement
Exhibit B Indemnity Escrow Agreement
Exhibit C Bill of Sale
Exhibit D Assignment and Assumption of Contracts Agreement
Exhibit E Assignment and Assumption of Equipment Rental Agreements
Exhibit F-1 Seller Non-Competition Agreement
Exhibit F-2 Buyer Non-Competition Agreement
Exhibit G Opinion Letter of Seller's Counsel
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LIST OF SCHEDULES
Schedule 1.4 Business
Schedule 1.9 Equipment
Schedule 1.13 Inventory
Schedule 1.21 Seller Contracts
Schedule 3.5 Allocation of Consideration
Schedule 4.2 Excluded Assets
Schedule 5.4 Required Consents
Schedule 5.5 Encumbrances
Schedule 5.9 Patents, Trademarks and Copyrights
Schedule 5.10 Financial Statements
Schedule 5.11 Legal Proceedings
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EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BREDA TELEPHONE CORP.
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to the provisions of Section 1007 of the Iowa Business Corporation
Act, Chapter 490, Code of Iowa, the undersigned corporation adopts the following
Amended and Restated Articles of Incorporation:
ARTICLE I
Name
The name of the corporation is Breda Telephone Corp. (the "Corporation").
ARTICLE II
Shares
Section 1. The Corporation is authorized to issue five million (5,000,000)
shares of common stock with no par value. Shares of stock in the Corporation
shall be issued only to residents of the telephone exchange area served by the
Corporation who subscribe to the Corporation's services, and to entities other
than individual persons, such as corporations, partnerships, cooperative
associations, sole proprietorships, or trusts, only if such an entity has its
principal place of business in said telephone exchange area and subscribes to
the Corporation's services. Each shareholder shall be limited to ownership of
shares representing no more than one percent (1%) ("Maximum Ownership
Percentage") of the total number of issued and outstanding shares of stock in
the Corporation, except that any shareholder owning more than the Maximum
Ownership Percentage on the date these Amended and Restated Articles of
Incorporation are adopted may continue to own said percentage, but no more than
said percentage. If the shareholder also holds a five percent (5%) or greater
ownership interest as a shareholder in another corporation, a partner in a
partnership, a member of a cooperative association, the proprietor of a sole
proprietorship, the trustee or beneficiary of a trust, or has a similar interest
in some other such entity or association, then the total number of shares held
in the aggregate by that shareholder and all such corporations, partnerships,
cooperative associations, proprietorships, trusts, and other entities shall not
exceed the Maximum Ownership Percentage, except that a
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shareholder owning more than the Maximum Ownership Percentage on the date these
Amended and Restated Articles of Incorporation are adopted may continue to own
said percentage, but no more than said percentage. Any shareholder who, as a
result of a stock redemption made by the Corporation following the adoption of
these Amended and Restated Articles of Incorporation, holds more than the
Maximum Ownership Percentage, may continue to own such resulting percentage, but
no more than such percentage.
Section 2. Only one person or entity shall be deemed the subscriber to
services from the Corporation with respect to any one telephone number, and only
one person per household shall qualify as a subscriber regardless of the number
of telephone numbers servicing the household. In the case where more than one
person or entity uses a particular telephone number, or where a household is
serviced by more than one telephone number, the customers shall designate one of
themselves as the subscriber. If no designation is made, the first name listed
on the account shall be deemed to be the subscriber. Only the subscriber shall
qualify for stock ownership in the Corporation. It is the intent of this section
that no more than the Maximum Ownership Percentage shall be held with respect to
any one telephone number or household. Notwithstanding the foregoing, any
persons or entities owning shares in violation of this section on the date these
Amended and Restated Articles of Incorporation are adopted may continue to own
said percentage of shares, but no more than said percentage.
Section 3. No shareholder shall have any prior preemptive right to purchase
all or any part of any stock now or hereafter authorized, issued, or acquired by
the Corporation. Each shareholder is entitled to one vote on each issue
presented for a vote of the shareholders, regardless of the number of shares
held by that shareholder. Cumulative voting shall not be permitted.
Section 4. Notwithstanding anything to the contrary herein, those
shareholders holding more than one (1) share of the former Class A stock of the
Corporation on the date these Amended and Restated Articles of Incorporation are
adopted shall, following said adoption, be treated as a separate shareholder
with respect to each share of former Class A stock so held, and shall be
entitled to one (1) vote in each of his or her capacities as a shareholder on
each issue presented for a vote of the shareholders. The right of a shareholder
under this section 4 to be treated as a separate shareholder with respect to
each share of former Class A stock shall terminate upon (i) termination of the
shareholder's service from the Corporation, (ii) removal of the shareholder from
the telephone exchange area served by the Corporation, (iii) the death of the
shareholder, or (iv) transfer of the shareholder's shares to another person or
entity.
ARTICLE III
Directors
Section 1. The number of directors shall be the number specified in or
fixed in accordance with the bylaws. The Board of Directors shall have the power
to fix or change the number of directors
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unless the shareholders, in amending or repealing the bylaws, provide expressly
that the Board of Directors shall not amend or repeal the bylaw establishing the
number of directors. The directors shall be divided into three (3) classes, with
each class to be as nearly equal in number as possible. The terms of
approximately one-third of the directors shall expire each year, and directors
shall be elected to three (3) year staggered terms.
Section 2. Each director shall be a shareholder in order to qualify for
office. If any director shall sell or transfer his or her shares in the
Corporation, that person shall at once cease to be a director.
ARTICLE IV
Non-Liability and Indemnification
Section 1. A director of this Corporation shall not be personally liable to
the Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) for a transaction from which the director derived an
improper personal benefit, or (iv) under Section 833 of the Iowa Business
Corporation Act. Any repeal or amendment of this Article by the shareholders of
the Corporation shall not adversely affect any right or protection of a director
existing at the time of such repeal or amendment. If the law of the
Corporation's state of incorporation is hereafter changed to permit further
elimination or limitation of the liability of directors for monetary damages to
the Corporation or its shareholders, then the liability of a director to this
Corporation shall be eliminated or limited to the fullest extent then permitted.
Section 2. Each individual who is or was a director of the Corporation (and
the heirs, executors, personal representatives or administrators of such
individual) who was or is made a party to, or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise ("Indemnitee"), shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended. In addition to the indemnification conferred
in this Article, the Indemnitee and any officer of the Corporation shall also be
entitled to have paid directly by the Corporation the expenses reasonably
incurred in defending any such proceeding against such Indemnitee, or any
similar type of proceeding against such officer, in advance of its final
disposition, to the fullest extent authorized by applicable law, as the same
exists or may hereafter be amended. The right to indemnification conferred in
this Article shall be a contract right.
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Section 3. The Corporation may, by action of the Board of Directors,
provide indemnification to such of the officers, employees and agents of the
Corporation to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by applicable law.
Section 4. The rights and authority conferred in this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation or Bylaws of the
Corporation, agreement, vote of shareholders or disinterested directors, or
otherwise.
Section 5. Any repeal or amendment of this Article by the shareholders of
the Corporation shall not adversely affect any right or protection of a director
or officer existing at the time of such repeal or amendment.
ARTICLE V
Transfer of Shares
Section 1. The Board of Directors shall have the power to redeem shares of
stock, at its option, for a redemption price equal to a fair value for such
shares, as determined by the Board of Directors in its sole discretion, in the
event of termination of service to a shareholder from the Corporation or removal
of a shareholder from the telephone exchange area served by the Corporation, or
in the case of death of a shareholder. Notwithstanding the foregoing, any
shareholder who on the date these Amended and Restated Articles of Incorporation
are adopted resides outside of the Corporation's telephone exchange area or does
not receive service from the Corporation may continue to own his or her current
percentage of shares in the Corporation.
Section 2. Any shareholder upon termination of service from the Corporation
or removal from the telephone exchange area served by the Corporation, or the
personal representative of a shareholder upon the shareholder's death, may elect
to transfer the shareholder's shares in the Corporation to parties other than
the Corporation, provided that the transferees are themselves eligible to be
shareholders of the Corporation by virtue of residing in an area served by the
Corporation and subscribing to service from the Corporation and by compliance
with the Corporation's Articles of Incorporation and Bylaws. Such transfer may
only be accomplished upon notice to the Corporation and appropriate entries made
on the stock record books of the Corporation. No share of stock shall be
transferred upon the books of this Corporation without the consent of the Board
of Directors of the Corporation. In the event that the shareholder does not
comply with this Section 2, the Corporation shall have the option to purchase
said shares of stock at a redemption price equal to a fair value for such
shares, as determined by the Board of Directors in its sole discretion.
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Section 3. No shareholder shall sell any shares owned by him or her in this
Corporation unless (1) he or she shall have first given the Corporation at least
sixty (60) days prior notice in writing of intention to transfer such shares,
and a copy of a written offer to purchase such shares stating the number of
shares to be transferred, the name of the proposed transferee, and the actual
price or prices for which it is intended the shares be sold; and (2) the
Corporation shall have failed within sixty (60) days after receipt of such
notice to notify such shareholder in writing of its willingness to purchase said
shares for the same price as the price for which the shareholder intends to sell
said shares to the party submitting the written offer.
Section 4. The provisions of this Article shall be considered a contract
between the Corporation and the shareholder and no transfer or sale of such
shares shall be valid or recognized by the Corporation or its stock transfer
agent unless the terms of this Article are complied with. If the Corporation
does give timely notification of the exercise of its option to purchase under
this Article, it must upon presentation of the certificate representing such
shares pay the purchase price.
Section 5. The Bylaws of the Corporation may place additional restrictions
on the transferability of shares and contain further qualifications for
ownership of shares.
ARTICLE VI
Quorum
Any number of the shareholders of the Corporation present in person or
represented by proxy shall constitute a quorum for purposes of conducting
business at a meeting of the shareholders, unless the representation of a
different number is required by law, and in that case, the representation of the
number so required shall constitute a quorum. If a quorum shall fail to attend
any meeting, the chairperson of the meeting or a majority of the votes present
may adjourn the meeting to another place, date or time.
When a meeting is adjourned to another place, date or time, notice need not
be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however
that if the date of any adjourned meeting is more than one hundred twenty (120)
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, notice of the place, date and
time of the adjourned meeting shall be given. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
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ARTICLES VII
Amendments to Articles
Unless the Iowa Business Corporation Act requires a greater vote or a vote
by voting groups, these Articles of Incorporation may be amended at any regular
or special meeting of the shareholders of the Corporation at which a quorum is
present, by a majority vote of the shareholders actually voting on said
amendments, provided that notice of such proposed amendments has been given to
each shareholder no fewer than ten (10) nor more than sixty (60) days prior to
the date of said meeting. Notwithstanding the foregoing, amending Article VIII
hereof shall require the affirmative vote of at least two-thirds (2/3) of all of
the shareholders of the Corporation.
ARTICLE VIII
Sale or Merger; Dissolution
The Corporation may be sold, merged into another corporation, or dissolved,
or the Corporation may sell all or substantially all of its assets, only upon a
vote in favor thereof by at least two-thirds (2/3) of all of the shareholders of
the Corporation.
ARTICLE IX
Certificate of Adoption
Section 1. The duly adopted Amended and Restated Articles of Incorporation
set forth above supersede the prior articles of incorporation of the Corporation
and all amendments to them.
Section 2. The foregoing Amended and Restated Articles of Incorporation
were adopted by the shareholders of the Corporation on February 28, 1995, in the
manner prescribed by the Iowa Business Corporation Act.
Section 3. The designation, number of outstanding shares, number of votes
entitled to be cast by each voting group entitled to vote separately on the
amendments, and the number of votes of each voting group indisputably
represented at the meeting are as follows:
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VOTES ENTITLED TO
BE CAST ON AMENDED
AND RESTATED VOTES
DESIGNATION SHARES ARTICLES OF REPRESENTED
OF GROUP OUTSTANDING INCORPORATION AT MEETING
-------- ----------- ------------- ----------
Class A 603 603 357
Class B 1456 1456 1001
Section 4. The total number of votes cast for and against the Amended and
Restated Articles of Incorporation by each voting group entitled to vote
separately on the Amended and Restated Articles of Incorporation is as follows:
VOTING GROUP VOTES FOR VOTES AGAINST
------------ --------- -------------
Class A 346 11
Class B 992 9
Section 5. The number of votes cast for the Amended and Restated Articles
of Incorporation by each voting group was sufficient for approval by that voting
group.
Section 6. The Amended and Restated Articles of Incorporation will result
in a reclassification of issued shares as per the resolutions of the Board of
Directors attached hereto as Exhibit A.
Dated this 28th day of February, 1995.
BREDA TELEPHONE CORP.
/s/ Harold Uhlenkamp
----------------------------------
Harold Uhlenkamp, President
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EXHIBIT A
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF BREDA TELEPHONE CORP.
RESOLVED, that each of the previously authorized, issued, and outstanding
shares of Class A stock of the Company is hereby converted into and becomes two
(2) shares of common stock under the attached Amended and Restated Articles of
Incorporation, subject to the filing of the Amended and Restated Articles of
Incorporation with the Iowa Secretary of State. Upon this Resolution becoming
effective, each certificate which theretofore represented shares of the Class A
stock of the Company shall be deemed void and canceled, and each holder of
record of the issued shares of Class A stock of the Company at the close of
business on the date this Resolution becomes effective shall be entitled to
receive in lieu thereof a certificate or certificates representing shares of
common stock of the Company under the Amended and Restated Articles of
Incorporation which will represent the full number of shares to which he or she
is entitled as a result of the conversion made by this Resolution.
RESOLVED, that each of the previously authorized, issued, and outstanding
shares of Class B stock of the Company is hereby converted into and becomes
thirty (30) shares of common stock under the attached Amended and Restated
Articles of Incorporation, subject to the filing of the Amended and Restated
Articles of Incorporation with the Iowa Secretary of State. Upon this Resolution
becoming effective, each certificate which theretofore represented shares of the
Class B stock of the Company shall be deemed void and canceled, and each holder
of record of the issued shares of Class B stock of the Company at the close of
business on the date this Resolution becomes effective shall be entitled to
receive in lieu thereof a certificate or certificates representing shares of
common stock of the Company under the Amended and Restated Articles of
Incorporation which will represent the full number of shares to which he or she
is entitled as a result of the conversion made by this Resolution.
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BREDA TELEPHONE CORP.
(an Iowa Corporation)
(hereinafter referred to as "Corporation")
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Corporation shall be located in Breda, Carroll
County, Iowa or as identified in the most recent annual report filed by the
Corporation with the Iowa Secretary of State.
ARTICLE 2
NUMBER OF DIRECTORS
The number of directors shall be such number as the board of directors
shall at the time have designated. In the absence of any such designation, such
number shall be not less than five (5) persons or more than nine (9) persons.
ARTICLE 3
MEETINGS OF SHAREHOLDERS
Section 3.1 Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held in the month of March, April, or
May each year at such place, time and date as the board of directors shall
designate.
Section 3.2 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by the Iowa Business
Corporation Act or the Articles of Incorporation, may be called by the President
or the board of directors, and shall be called by the board of directors upon
the written demand, signed, dated and delivered to the Secretary, of the
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holders of at least ten percent of all the votes entitled to be cast on any
issue proposed to be considered at the meeting. Such written demand shall state
the purpose or purposes for which such meeting is to be called. The time, date
and place of any special meeting shall be determined by the board of directors,
or, at its direction, by the President.
Section 3.3 Notice of Meetings. Notice of (i) the place, date and time of
all meetings of shareholders; (ii) the initial authorization or issuance,
subsequent to the next preceding shareholders meeting, of shares for promissory
notes or promises to render services in the future; (iii) any indemnification of
a director required by law to be reported to shareholders; and, (iv) in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) days nor more than sixty (60) days
before the date of the meeting to each shareholder entitled to vote at such
meeting and to such other shareholders as are required by law to be given such
notice. The board of directors may establish a record date for the determination
of shareholders entitled to notice, as provided in Section 6.9 of these bylaws.
Notice of adjourned meetings need only be given if required by law or Section
3.6 of these bylaws.
Section 3.4 Waiver of Notice.
(a) A written waiver of notice of any meeting of the shareholders signed by
any shareholder entitled to such notice, whether before or after the time stated
in such notice for the holding of such meeting, shall be equivalent to the
giving of such notice to such shareholder in due time as required by law and
these bylaws.
(b) A shareholder's attendance at any shareholders meeting, in person or by
proxy, waives (i) giving of notice of such meeting and irregularities in any
notice given, unless the shareholder at the beginning of the meeting or promptly
upon the shareholder's arrival objects to holding the meeting or transacting
business at the meeting, and (ii) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
Section 3.5 Voting List. After fixing a record date for a meeting, the
Secretary shall prepare an alphabetical list of the names of all shareholders
who are entitled to notice of the shareholders meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares, and show the address of and number of shares held by each shareholder.
The shareholders list must be available for inspection by any shareholder
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder, or a shareholder's agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of law, to copy the list, during regular business hours and at the
person's expense, during the period it is available for inspection. The
Corporation shall make the shareholders list available at the meeting, and any
shareholder, or a shareholder's agent or attorney, is entitled to inspect the
list at any time during the meeting or any adjournment.
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Section 3.6 Quorum.
(a) At any meeting of the shareholders, any number of the issued and
outstanding shares of the Corporation represented in person or by proxy shall
constitute a quorum for the transaction of business, unless the representation
of a different number is required by law, and in that case, the representation
of the number so required shall constitute a quorum.
(b) When a meeting is adjourned to another place, date or time, notice need
not be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than one hundred twenty (120)
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 3.7 Organization.
(a) Such person as the board of directors may have designated, or, in the
absence of such a person, the President, or in his or her absence, such person
as shall be designated by the holders of a majority of the shares present at the
meeting, shall call meetings of the shareholders to order and shall act as
chairperson of such meetings.
(b) The Secretary of the Corporation shall act as Secretary at all meetings
of the shareholders, but in the absence of the Secretary at any meeting of the
shareholders, the presiding officer may appoint any person to act as Secretary
of the meeting.
Section 3.8 Voting of Shares.
(a) Except as otherwise provided by law, each shareholder shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders,
regardless of the number of shares held by that shareholder. Unless otherwise
provided by law, at each meeting for the election of directors, each shareholder
entitled to vote shall be entitled to one vote for as many persons as there are
directors to be elected and for whose election such shareholder has a right to
vote, and directors shall be elected by a majority of the votes cast.
(b) The shareholders having the right to vote shares at any meeting shall
only be those of record on the stock books of the Corporation, on the record
date fixed pursuant to the provisions of Section 6.9 of these bylaws or by law.
(c) Absent special circumstances, the shares of the Corporation held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Corporation,
shall not be voted at any meeting.
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(d) Voting by shareholders on any question or in any election may be viva
voce unless the chairperson of the meeting shall order or any shareholder shall
demand that voting be by ballot.
(e) If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless a
greater number is required by law.
Section 3.9 Voting by Proxy or Representative.
(a) At all meetings of the shareholders, a shareholder entitled to vote may
vote in person or by proxy appointed in writing, except that voting for the
election of directors shall be as determined by board policy. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
(b) Shares held by an administrator, executor, guardian, conservator,
receiver, trustee, pledgee, or another corporation may be voted as provided by
law.
Section 3.10 Inspectors. The board of directors in advance of any meeting
of shareholders may (but shall not be obliged to) appoint inspectors to act at
such meeting or any adjournment thereof. If inspectors are not so appointed, the
officer or person acting as chairperson of any such meeting may, and on the
request of any shareholder or his or her proxy, shall make such appointment. In
case any person appointed as inspector shall fail to appear or act, the vacancy
may be filled by appointment made by the board of directors in advance of the
meeting, or at the meeting by the officer or person acting as chairperson. The
inspectors shall register proxies, determine the number of shares outstanding,
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the authenticity, validity and effect of proxies, receive votes,
ballots, assents or consents, hear and determine all challenges and questions in
any way arising in connection with the vote, count and tabulate all votes,
assents and consents, determine and announce the result, and do such acts as may
appear proper to conduct the election or vote with fairness to all shareholders.
The maximum number of such inspectors appointed shall be three, and no inspector
whether appointed by the board of directors or by the officer or person acting
as chairperson need be a shareholder. Notwithstanding the following, the
counting of votes, ballots, and proxies for the election of directors shall be
as determined by board policy.
Section 3.11 Consent of Shareholders in Lieu of Meeting. Any action
required or permitted by law to be taken at a meeting of the shareholders, may
be taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by the holders of outstanding shares having not less than
ninety percent (90%) of the votes entitled to be cast at a meeting at which all
shares entitled to vote on the action were present and voted, and are delivered
to the Corporation for inclusion in the minutes.
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Section 3.12 Conduct of Business. The chairperson of any meeting of
shareholders shall determine the order of business and procedure at the meeting,
including such regulation of the manner of voting and the conduct of business as
seem to him or her to be in order.
Section 3.13 Rights and Liabilities of Shareholders. Any provisions
relating to the rights and liabilities of a shareholder of the Corporation shall
apply equally with respect to the holders of jointly issued shares. Without
limiting the generality of the foregoing, the effect of actions by holders of
jointly owned shares shall be as follows:
(1) The presence at a meeting of either or both shall be regarded as the
presence of one shareholder and shall constitute a joint waiver of
notice of the meeting;
(2) The vote of either separately or both jointly shall constitute one
joint vote;
(3) A waiver of notice signed by either or both shall constitute a joint
waiver;
(4) Notice to either shall constitute notice to both;
(5) The disqualification of either from eligibility to own shares in the
Corporation shall disqualify both;
(6) Either, but not both, may be elected or appointed as an officer or
board member if individually qualified;
(7) Upon the death of either natural person, or the dissolution of either
corporation, partnership, cooperative association, or trust, that is a
joint owner of the stock, the stock shall be reissued in the name of
the survivor. However, the estate of the deceased or the dissolved
entity shall not be released from any debts due the Corporation.
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 Qualifications and General Powers. Each director shall be a
shareholder in order to qualify for election to office. If any director shall
sell or transfer his or her shares in the Corporation, that person shall at once
cease to be a director. All directors must be at least eighteen (18) years of
age. The business and affairs of the Corporation shall be managed by the board
of directors. The board of directors may authorize any officer or officers,
agent or agents, to enter into any contract or to execute and deliver any
instrument in the name and on behalf of the Corporation, and such authority may
be general or confined to specific instances.
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Section 4.2 Increase in Number of Directors. In case the number of
directors is increased by thirty percent or less of the number of directors last
approved by the shareholders, by amendment to these bylaws by the board of
directors or by resolution of the board of directors, the directorships to be
filled by reason thereof may be filled by the affirmative vote of a majority of
the directors, though less than a quorum of the board of directors. Any director
so elected shall serve only until the next election of directors by the
shareholders.
Section 4.3 Tenure: Staggered Terms. Each director shall hold office for a
period of three (3) years and until his or her successor shall have been elected
and qualifies, or until his or her death, resignation, or removal. The terms of
the directors shall be staggered, with approximately one-third of the directors'
terms expiring each year.
Section 4.4 Quorum and Manner of Acting. A majority of the number of
directors then holding office shall constitute a quorum for the transaction of
business; but if at any meeting of the board there be less than a quorum
present, a majority of the directors present may adjourn the meeting from time
to time until a quorum shall be present. Notice of any adjourned meeting need
not be given. At all meetings of directors, a quorum being present, the act of
the majority of the directors present at the meeting shall be the act of the
board of directors.
Section 4.5 Resignation. Any director of the Corporation may resign at any
time by giving written notice to the board of directors, its chairperson or the
Corporation. The resignation of any director shall take effect upon delivery of
notice thereof or at such later date as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 4.6 Removal. A director shall be subject to removal, with or
without cause, at a meeting of the shareholders called for that purpose in the
manner prescribed by law.
Section 4.7 Vacancies. Any vacancy occurring on the board of directors
through death, resignation, removal or any other cause may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the board of directors. A director elected to fill a vacancy shall be
elected only until the next election of directors by the shareholders, at which
time the shareholders shall elect a director to serve for the remainder of the
three-year term of the vacant directorship.
Section 4.8 Compensation of Directors. The directors shall be entitled to
be reimbursed for any expenses paid by them on account of attendance at any
regular or special meeting of the board of directors and the board may fix the
compensation of directors from time to time by resolution of the board.
Section 4.9 Place of Meetings, etc. The board of directors may hold its
meetings and keep the books and records of the Corporation (except that the
record of its shareholders must also be kept
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at the places described in Section 3.5 of these bylaws) at such place or places
within or without the State of Iowa, as the board may from time to time
determine. A director may participate in any meeting by any means of
communication, including, but not limited to telephone conference call, by which
all directors participating may simultaneously hear each other during the
meeting.
Section 4. 10 Annual Meeting. Immediately after the final adjournment of
each annual meeting of the shareholders for the election of directors, the board
of directors shall meet for the purpose of organization, the election of
officers and the transaction of other business. Notice of such meeting need not
be given. Such meeting may be held at any other time as shall be specified in a
notice given as hereinafter provided for special meetings of the board of
directors or in a consent and waiver of notice thereof signed by all the
directors, at which meeting the same matters shall be acted upon as is above
provided.
Section 4.11 Regular Meetings. Regular meetings of the board of directors
shall be held at such place and at such times as the board of directors shall by
resolution fix and determine from time to time. No notice shall be required for
any such regular meeting of the board.
Section 4.12 Special Meetings; Notice.
(a) Special meetings of the board shall be held whenever called by
direction of the President, or one-third (1/3) of the directors at the time
being in office.
(b) Notice of each such meeting shall be delivered to each director, at
least two (2) days before the date on which the meeting is to be held, by mail,
telegraph, cable, facsimile transmission, radio or other wireless communication,
or personally or by telephone. Each notice shall state the time and place of the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting. At any meeting at which every director
shall be present, even without any notice, any business may be transacted.
Section 4.13 Substitutes for Notice. A written waiver of notice signed by a
director, whether before or after the time of the meeting stated therein, shall
be equivalent to the giving of such notice in due time as required by these
bylaws. Attendance of a director at or participation in a meeting shall
constitute a waiver of notice of such meeting, unless the director at the
beginning of the meeting or promptly upon arrival objects to holding the meeting
or transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
Section 4.14 Director's Assent Presumed. A director of the Corporation who
is present at a meeting of its board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless the director's dissent shall be entered in the minutes of the meeting or
unless the director shall file a written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the
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meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 4.15 Order of Business.
(a) At meetings of the board of directors, business shall be transacted in
such order as, from time to time, the board of directors may determine by
resolution.
(b) At all meetings of the board, the chairperson of the meeting or in his
or her absence, vice chairperson, or in their absence the President, or in the
President's absence the most senior Vice President present, or otherwise the
person designated by the vote of a majority of the directors present shall
preside.
Section 4.16 Action Without Meeting. Any action required or permitted by
law to be taken at any meeting of the board of directors may be taken without a
meeting if the action is taken by all members of the board and if one or more
consents in writing setting forth the action so taken shall be signed by all of
the directors then in office and included in the minutes.
Section 4.17 Committees.
(a) The board of directors, by resolution adopted by the affirmative vote
of a majority of the number of directors then in office, may establish one or
more committees, including an executive committee, each committee to consist of
two (2) or more directors appointed by the board of directors. Any such
committee shall serve at the will of the board of directors. Each such committee
shall have the powers and duties delegated to it by the board of directors. The
board of directors may elect one or more of its members as alternate members of
any such committee who may take the place of any absent member or members at any
meeting of such committee, upon request by the President or the chairperson of
such committee. Each such committee shall fix its own rules governing the
conduct of its activities as the board of directors may request.
(b) A committee of the board shall not: (i) authorize distributions by the
Corporation; (ii) approve or propose to shareholders of the Corporation action
that the law requires be approved by shareholders; (iii) fill vacancies on the
board of directors of the Corporation or on any of its committees; (iv) amend
the articles of incorporation of the Corporation; (v) adopt, amend or repeal
bylaws of the Corporation; (vi) approve a plan of merger not requiring
shareholder approval; (vii) authorize or approve reacquisition of shares by the
Corporation, except according to a formula or method prescribed by the board of
directors; or (viii) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or a senior executive officer of the
Corporation to do so within limits specifically prescribed by the board of
directors.
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ARTICLE 5
OFFICERS
Section 5.1 Generally. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the board of directors), a Secretary, a Treasurer and such other officers as may
from time to time be appointed by the board of directors. The officers must be
directors of the Corporation. In its discretion, the board of directors may
delegate the powers or duties of any officer to any other officer or agents,
notwithstanding any provision of these bylaws, and the board of directors may
leave unfilled for any such period as it may fix, any office except those of
President, Treasurer and Secretary. The officers of the Corporation shall be
appointed annually by the board of directors at the annual meeting thereof. Each
such officer shall hold office until the next succeeding annual meeting of the
board of directors and until his or her successor shall have been duly chosen
and shall qualify or until his or her death or until he or she shall resign or
shall have been removed.
Section 5.2 Removal. Any officer may be removed by the board of directors,
with or without cause, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 5.3 Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation. Subject to the provisions of these
bylaws and to the direction of the board of directors, he or she shall have the
responsibility for the general management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the board of directors. He or she shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision and direction of all of
the other officers, employees and agents of the Corporation.
Section 5.4 Powers and Duties of the Vice President(s). In the absence of
the President or in the event of the death, inability or refusal to act of the
President, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, the senior Vice President in
length of service) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be assigned to
such Vice President by the President or by the board of directors.
Section 5.5 Powers and Duties of the Secretary. The Secretary shall (a)
keep minutes of all meetings of the shareholders and of the board of directors;
(b) authenticate records of the Corporation and attend to giving and serving all
notices of the Corporation as provided by these
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bylaws or as required by law; (c) be custodian of the corporate seal (if any),
the stock certificate books and such other books, records and papers as the
board of directors may direct, and see that the corporate seal (if any) is
affixed to all stock certificates and to all documents, the execution of which
on behalf of the Corporation under its seal (if any) is duly authorized; (d)
keep a stock record showing the names of all persons who are shareholders of the
Corporation, their post office addresses as furnished by each such shareholder
and the number of shares of each class of stock held by them respectively and,
at least ten (10) days before each shareholders meeting, prepare a complete list
of shareholders entitled to vote at such meeting arranged in alphabetical order;
(e) sign with the President or a Vice President certificates for shares of the
Corporation, the issuance of which shall have been duly authorized; and (f) in
general, perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to the Secretary by the President or
the board of directors.
Section 5.6 Powers and Duties of the Treasurer. The Treasurer shall (a)
have custody of and be responsible for all moneys and securities of the
Corporation, shall keep full and accurate records and accounts in books
belonging to the Corporation, showing the transactions of the Corporation, its
accounts, liabilities and financial condition and shall see that all
expenditures are duly authorized and are evidenced by proper receipts and
vouchers; (b) deposit in the name of the Corporation in such depository or
depositories as are approved by the directors, all moneys that may come into the
Treasurer's hands for the Corporation's account; (c) render an account of the
financial condition of the Corporation at least annually; and (d) in general,
perform such duties as may from time to time be assigned to the Treasurer by the
President or by the board of directors.
Section 5.7 Assistants. There shall be such number of Assistant Secretaries
and Assistant Treasurers as the board of directors may from time to time
authorize and appoint. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the
Secretary, or the Treasurer, respectively, or by the President or the board of
directors. The board of directors shall have the power to appoint any person to
act as assistant to any other officer, or to perform the duties of any other
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer so appointed shall have the
power to perform all the duties of the office to which he or she is so appointed
to be assistant, or as to which he or she is so appointed to act, except as such
power may be otherwise defined or restricted by the board of directors.
Section 5.8 Salaries. If the officers are to receive salaries, the amounts
thereof shall be fixed from time to time by the board of directors, and no
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a director of the Corporation.
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ARTICLE 6
SHARES, THEIR ISSUANCE AND TRANSFER
Section 6.1 Consideration for Shares. The board of directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the Corporation, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the Corporation. Before the Corporation issues shares, the board of directors
must determine that the consideration received or to be received for shares to
be issued is adequate. If the Corporation issues or authorizes the issuance of
shares for promissory notes or for promises to render services in the future,
the Corporation shall report in writing to the shareholders the number of shares
authorized or issued and the consideration received by the Corporation with or
before the notice of the next shareholders meeting.
Section 6.2 Certificates for Shares. Every shareholder of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
board of directors shall prescribe, certifying the number and class of shares of
the Corporation owned by such shareholder.
Section 6.3 Execution of Certificates. The certificates for shares of stock
shall be numbered in the order in which they shall be issued and shall be signed
by the President or a Vice President and the Secretary or an Assistant Secretary
of the Corporation, and may be sealed with the seal (if any) of the Corporation
or a facsimile thereof. In case any officer or other authorized person who has
signed such certificate for the Corporation shall have ceased to be such officer
or employee or agent before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer or employee
or agent at the date of its issue.
Section 6.4 Share Record. A record shall be kept by the Secretary, or by
any other officer, employee or agent designated by the board of directors, of
the names and addresses of all shareholders and the number and class of shares
held by each represented by such certificates and the respective dates thereof
and in case of cancellation, the respective dates of cancellation.
Section 6.5 Cancellation. Every certificate surrendered to the Corporation
for exchange or transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until such
existing certificate shall have been so canceled, except in cases provided in
Section 6.8 of these bylaws.
Section 6.6 Transfers of Stock. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the record
holder thereof, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of
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the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation; provided, however, that whenever any transfer of shares shall
be made for collateral security, and not absolutely, such fact, if known to the
Secretary of the Corporation, shall be so expressed in the entry of transfer.
Section 6.7 Regulations. The board of directors may make such other rules
and regulations as it may deem expedient, not inconsistent with law, concerning
the issue, transfer and registration of certificates for shares of the stock of
the Corporation.
Section 6.8 Lost, Destroyed, or Mutilated Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the board of directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 6.9 Record Date. The board may fix, in advance, a date as the
record date for any determination of shareholders for any purpose, such date in
every case to be not more than seventy (70) days prior to the date on which the
particular action or meeting, requiring such determination of shareholders, is
to be taken or held. If no record date is so fixed for the determination of
shareholders, the close of business on the day before the date on which the
first notice of a shareholder meeting is delivered or the date on which the
resolution of the board of directors declaring a share dividend or distribution
(other than in connection with a repurchase or reacquisition of shares) is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the board of
directors selects a new record date or unless a new record date is required by
law.
Section 6.10 Dividends. The directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1 Corporate Seal. The board of directors may by resolution (but
shall not be required to) provide for a corporate seal which, if provided, shall
be circular in form and shall bear the name of the Corporation and the words
"Corporate Seal" and "Iowa". The Secretary shall be custodian of any such seal.
The board of directors may also authorize a duplicate seal to be kept and used
by any other officer.
Section 7.2 Fiscal Year. The fiscal year of the Corporation shall begin on
the first day in January in each year, and end at the close of business on the
last day of December of each year.
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Section 7.3 Voting of Stocks Owned by the Corporation. In the absence of a
resolution of the board of directors to the contrary, the President of the
Corporation or any Vice President acting within the scope of his or her
authority as provided in Section 5.4 of these bylaws is authorized and empowered
on behalf of the Corporation to attend, vote, grant discretionary proxies to be
used at any meeting of shareholders of any corporation in which this Corporation
holds or owns shares of stock, and in that connection, on behalf of this
Corporation, to execute a waiver of notice of any such meeting. The board of
directors shall have authority to designate any officer or person as a proxy or
attorney-in-fact to vote shares of stock in any other corporation in which this
Corporation may own or hold shares of stock.
Section 7.4 Shareholders' Right to Information.
(a) A shareholder of the Corporation is entitled to inspect and copy,
during regular business hours at the Corporation's principal office, any of the
following records of the Corporation, if the shareholder gives the Corporation
written notice of the shareholder's demand at least five business days before
the date on which the shareholder wishes to inspect and copy:
(1) Articles or Restated Articles of Incorporation and all amendments
currently in effect;
(2) Bylaws or Restated Bylaws and all amendments currently in effect;
(3) Resolutions adopted by the board of directors creating one or more
classes or series of shares and fixing their relative rights,
preferences and limitations, if shares issued pursuant to those
resolutions are outstanding;
(4) Minutes of all shareholders meetings and records of all action taken
by shareholders without a meeting for the past three years;
(5) All written communications to shareholders generally within the past
three years, including the financial statements furnished for the past
three years;
(6) A list of the names and business addresses of the Corporation's
current directors and officers; and
(7) The Corporation's most recent annual report delivered to the Iowa
Secretary of State.
(b) If (i) a shareholder makes a demand in good faith and for a proper
purpose, (ii) the shareholder describes with reasonable particularity the
shareholder's purpose and the records the shareholder desires to inspect, and
(iii) the record requested is directly connected with the shareholder's stated
purpose, the shareholder shall also be entitled to inspect and copy, during
regular business hours at a reasonable location specified by the Corporation,
any of the following records of
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the Corporation provided the shareholder gives the Corporation written notice of
the shareholder's demand at least five business days before the date on which
the shareholder wishes to inspect and copy any of the following:
(1) Excerpts from minutes of any meeting of the board of directors,
records of any actions of a committee of the board of directors while
acting as authorized by the board of directors on behalf of the
Corporation, minutes of any meeting of the shareholders, and records
of action taken by the shareholders or the board of directors without
a meeting to the extent not subject to inspection under the preceding
subparagraph;
(2) Accounting records of the Corporation; and
(3) The record of shareholders of the Corporation.
Section 7.5 Contracts, Loans, Checks and Deposits.
(a) The directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation. Such authority may be general or confined to
specific instances.
(b) No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
(c) All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by resolution of the
directors.
(d) All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the directors may select.
ARTICLE 8
INDEMNIFICATION OF DIRECTORS
Section 8.1 Mandatory Indemnity. Each individual who is or was a director
of the Corporation (and the heirs, executors, personal representatives or
administrators of such individual) who was or is made a party to, or is involved
in any threatened, pending or completed action, suit or
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proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director of the Corporation or is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise ("Indemnitee"), shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by applicable law, as the same exists or may hereafter be amended. In addition
to the indemnification conferred in this Article, the Indemnitee shall also be
entitled to have paid directly by the Corporation the expenses reasonably
incurred in defending any such proceeding against such Indemnitee in advance of
its final disposition, to the fullest extent authorized by applicable law, as
the same exists or may hereafter be amended. The right to indemnification
conferred in this Article shall be a contract right.
Section 8.2 Non-Exclusivity of Rights. The rights to indemnification
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation or any agreement, vote of shareholders or
disinterested directors or otherwise.
ARTICLE 9
AMENDMENTS TO BYLAWS
These bylaws may be amended or repealed by the board of directors or by the
shareholders; provided, however, that the shareholders may from time to time
specify particular provisions of the bylaws which shall not be amended or
repealed by the board of directors.
E-91
EXHIBIT 10.1
EMPLOYMENT CONTRACT
THIS AGREEMENT, made in Breda, Carroll County, Iowa, by and between Breda
Telephone Corporation, an Iowa corporation, and having its principal place of
business at Breda, Iowa, hereinafter called "Breda" and Robert Boeckman who
resides in Carroll County, Iowa, hereinafter called "the Manager."
RECITAL OF FACTS
Breda provides telephone services for the cities of Breda and Lidderdale
and the surrounding territory and also controls subsidiary corporations, Prairie
Telephone Co., Inc. which provides telephone services for several communities in
southwestern Iowa, and Tele-Services, Ltd., which provides cable television
services for a number of communities and that Breda contracts with the
subsidiary corporations. Boeckman has been an employee of Breda Telephone
Corporation for many years and has knowledge and acquaintances with people in
the telephone industry of Iowa. The parties wish to continue the relationship
and to provide for certain contingencies recognizing the increased value to
Breda of the efforts and activities of the Manager.
NOW, THEREFORE, in consideration of the mutual promised of the parties and
the mutual benefits they will gain by the performances thereof, all in
accordance with the provisions hereinafter set forth,
IT IS THEREFORE AGREED:
1. Term of Employment. The Manager hereby binds himself to continue in the
service of Breda for a period of five (5) years from and after the effective
date, and Breda hereby agrees to retain the services of the Manager for the same
period of time.
2. Termination and Dismissal. Notwithstanding any other provisions of this
agreement, if at any time while this agreement is in effect, Breda wishes to
terminate this agreement, it shall notify the Manager by registered mail to the
last known post office address of the Manager of its intention to terminate and
shall allow the Manager ninety (90) days notice of his last day of employment
and shall pay the Manager the balance due under this contract.
3. Compensation. The Corporation agrees to pay the Manager a salary of
$59,037.71 during the year 1995. For the remaining term of this agreement,
effective January 1 of each year, the salary level shall be adjusted to an
amount equal to the previous years salary plus three and one-half percent (3
1/2%) plus the percentage increase as shown in the U.S. Department of Labor
average cost of living index (CPI) for the previous year. In addition to the
compensation provided herein, the Manager may
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<PAGE>
be provided with annual bonus at the discretion of the Board.
4. Manager Benefits. The Manager shall be entitled to the same benefits and
under the same conditions as are available to other full-time employees of Breda
according to the Breda policy and practice.
5. Disability of Manager. In the event of the total disability of the
Manager, the Manager shall be entitled to receive normal salary and benefits
until the Breda disability program becomes effective and payable. Upon
expiration, Breda shall be under no further obligation to the Manager other than
those obligations normally existing under this contract. Total disability shall
be defined to mean a mental or physical inability of the Manager to fulfill the
requirements of the Manager as determined by the Board of Directors.
6. Death of Manager. In the event of the death of the Manager from any
cause, the terms and conditions of this agreement shall no longer be binding.
However, Breda shall pay to the Manager's designated beneficiary, as shown in
the records of Breda, any salary earned but unpaid as of the date of death, and
an amount equivalent to six months salary at the Manager's salary rate at the
date of death and the salary equivalent of all accrued but unused vacation time
at the date of death.
7. Manager's Duties and Performance. The Manager shall be responsible for
the direction of all Breda activities and services; the hiring, discharge, and
compensation of the employees of Breda under policies established by the Board
of Directors; and for the interpretations and implementation of Breda policy as
set forth by the Board of Directors and the Manager agrees to exercise judgement
and discretion in the best interest of Breda. The Board of Directors of Breda
acting in concert shall determine compliance with this paragraph and may
determine the Manager to be in default; provided, however, the provisions of
paragraph 2 hereof with regard to dismissal of the Manager shall apply. The
Manager shall be supervised by the Chief Executive Officer (CEO) and the Manager
shall advise and assist the CEO and be responsive to the needs and requirements.
The Manager shall be available to fulfill the responsibilities of his position
at all times and shall maintain an office and telephone in his home in order to
fulfill these responsibilities during other than normal working hours.
8. Employee Business Expense. Breda will reimburse the Manager for all
necessary and reasonable expenses incurred by him in management and conduct of
the affairs of Breda, including, but not limited to expenses incurred for
travel, lodging, meals, entertainment, and membership in organizations used for
any of the foregoing.
The Manager shall obtain expenses approval by submitted itemized expense
accounts to the CEO.
9. Extension or Renewal. Unless Breda notifies the Manager in writing prior
to April 1, 1999 of an intention to terminate the agreement, this agreement
shall be extended for additional periods of one (1) year beyond the period in
paragraph one under the same terms and conditions as
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<PAGE>
exists for the year of January 1, 1995 to December 31, 1999 and may be subject
to renegotiating from that time on.
10. Changes of Ownership. In the event the majority ownership of the
corporation should change, the balance of the salary due the Manager under the
terms of this contract shall be paid in full at the Manager's sole discretion.
11. Effective Date. The effective date of this contract shall be January 1,
1995.
Signed this 12 day of April, 1995.
BREDA TELEPHONE CORPORATION
By /s/ Harold Uhlenkamp
----------------------------------
President
By /s/ Roger Schwave
----------------------------------
Secretary
/s/ Robert Boeckman
----------------------------------
Robert Boeckman, Manager
E-94
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is effective March 30, 1998, by and between Breda Telephone
Corporation, an Iowa corporation, hereinafter referred to as "Breda", and Jane
Morlok, hereinafter referred to as "Jane".
Breda desires to employ Jane to devote her full-time to the business of the
corporation, and Jane desires to be so employed.
The parties agree as follows:
1. Employment. Breda agrees to employ Jane, and Jane agrees to be so
employed, in the capacity of Chief Financial Officer and Co-Manager. Employment
shall be for a term of two (2) years, effective as of March 30, 1998, and
terminating March 30, 2000.
2. Time and Efforts. Jane shall diligently and conscientiously devote her
full and exclusive time and attention and best efforts in discharging her duties
as Breda's Chief Financial Officer and Co-Manager.
3. Board of Directors. Jane shall at all times discharge her duties in
consultation with, and under the supervision of, Breda's Board of Directors.
4. Compensation. Breda shall pay to Jane as compensation for her services
the sum of Fifty-five Thousand Dollars ($55,000.00) on an annual basis. The
Board of Directors, after six (6) months, shall review Jane's performance and
her salary.
5. Benefits. Breda shall provide the following benefits to Jane:
a. Health Insurance. 80/20 coverage with 100% hospitalization
coverage. Breda will pay the premium for family insurance
coverage. Jane will be responsible for paying the $250.00
deductible and $100.00 deductible for dental care, eye care, and
drug card.
E-95
<PAGE>
b. Life Insurance. Breda will provide life insurance coverage in an
amount equal to one times Jane's yearly salary.
c. Disability Insurance. Breda will provide long term disability
coverage as outlined by NTCA.
d. Retirement. Contributions to a retirement fund will be made by
Breda in an amount equal to 8.6% of Jane's yearly salary, and
Jane will contribute 3.0% of her yearly salary to said fund.
e. Pre-Retirement Death Benefit. Breda will provide Pre-Retirement
Death Benefit to Jane as contained in the NTCA package.
f. Clothing Allowance. Breda will provide Jane with a $300.00
clothing allowance during her first year of employment with the
company, and $150.00 per year for every year of employment
thereafter.
g. Free local telephone service.
h. Free basic cable service if living in a town served by Breda.
6. Expenses. Breda shall reimburse Jane for all reasonable and necessary
expenses incurred in carrying out her duties under this agreement. Jane shall
present to Breda from time to time an itemized account of such expenses in the
form required by Breda.
7. Disability. In the event any illness or accident renders Jane totally
disabled, Breda's obligation under this agreement shall terminate thirteen (13)
weeks after the determination of total disability.
8. Disclosure of Information. Jane acknowledges that the financial affairs
of the company, the location and condition of the plant and facilities, Breda's
future plans, sales methods, pricing and costs, as well as information
pertaining to Breda's customers, including, but not limited to, identity,
location, service requirements, and charges to the customers are valuable,
special, and unique assets of Breda's business. Jane shall not, during and after
the term of her employment, disclosure Breda's financial affairs, location and
condition of the plant and facilities, future plans, sales methods, pricing and
costs, and information pertaining to Breda's customers, including, but not
limited to, identity, location, service requirements, and charges to the
customers to any person, firm, corporation, association, or any other entity,
other than Shareholders of Breda who are entitled to said information, for any
reason or purpose. In the event of Jane's breach or threatened breach of this
paragraph, Breda shall be entitled to a preliminary restraining order and an
injunction restraining and enjoining Jane from disclosing all or any part of
this information. In addition to or in lieu of the
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<PAGE>
above, Breda may pursue all other remedies available to Breda for such breach or
threatened breach, including the recovery of damages from Jane.
9. Trade Secrets and Confidential Information. During the term of this
agreement, Jane may have access to and become familiar with various trade
secrets and confidential information belonging to Breda, including, but not
limited to, the documents and information referred to in paragraph 8 above. Jane
acknowledges that such confidential information and trade secrets are owned and
shall continue to be owned solely by Breda. During this employment, and for
thirty-six (36) months after such employment terminates for any reason,
regardless of whether termination is initiated by Breda or by Jane, Jane agrees
not to use, communicate, reveal, or otherwise make available such information
for any purpose whatsoever, or to divulge such information to any person,
partnership, corporation, or entity, other than Breda, the Shareholders of
Breda, or persons expressly designated by Breda, unless Jane is compelled to
disclose such information by judicial process.
10. Vacation. Jane shall be entitled to vacation of three (3) weeks per
year during which her compensation shall be paid in full.
11. Relocation Assistance. Breda would prefer that Jane relocate to either
Breda or Carroll within the next two years. If Jane does relocate to Breda or
Carroll, Breda would agree to pay reasonable expenses incurred in moving
furniture, normal household goods, and personal belongings to the new location.
12. Termination Without Cause. Breda may terminate this agreement at any
time, without cause, by giving thirty (30) days written notice to Jane. In that
event, if requested by Breda, Jane shall continue to render her services and
shall be paid her regular compensation up to the date of termination. In
addition, Jane shall be paid on the date of termination the severance allowance
equal to the amount remaining to be paid under this contract.
13. Termination for Cause. Breda may terminate this agreement for cause
upon five (5) days written notice to Jane stating the reason for said
termination. Matters which would be considered terminable for cause would
include, but not be limited to:
a. Fraud or theft;
b. Falsifying records;
c. Refusal to carry out a specific order of the Board of Directors;
d. Abuse, discrimination, or harassment of another employee;
e. Unauthorized dissemination of records or information;
f. Divulging confidential information;
g. Possession of illegal drugs or weapons while on Breda property;
h. Conviction of a crime, the nature of which would be calculated to
render an employee undesirable as a co-manager and detrimental to
the best interest of the company; and
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<PAGE>
i. Using or possessing intoxicants or narcotics of any kind while on
company premises or being at work under the influence of such
substances.
14. Arbitration. Should any dispute arise as to the interpretation of any
term or provision of this agreement, or the termination of this agreement, or
the termination of Jane's employment, the issue shall be decided by arbitration.
The arbitration proceedings shall be conducted under the applicable rules of the
State of Iowa. The decision of the arbitrator shall be final and binding on all
parties. The arbitrator's fee and costs, including fees for records or
transcripts, shall be borne equally by the parties.
15. Governing Law. This agreement shall be construed and enforced in
accordance with the laws of the State of Iowa.
16. Entire Contract. This agreement constitutes the entire understanding
and agreement between Breda and Jane with regard to all matters herein. There
are no other agreements, conditions, or representations, oral or written,
express or implied, with regard thereto. This agreement may be amended only in
writing signed by the parties.
17. Binding Effect. The provisions of this agreement shall be binding upon
and endure to the benefit of both parties and their respective successors and
assigns.
/s/ Jane Morlok /s/ Dean R. Schettler
- ----------------------- ------------------------------
Jane Morlok Dean R. Schettler, President
Breda Telephone Corporation
E-98
EXHIBIT 21
LIST OF SUBSIDIARIES
Name State of Incorporation
---- ----------------------
Prairie Telephone Company, Inc. Iowa
Westside Independent Telephone Company Iowa
Tele-Services, Ltd. Iowa
BTC, Inc. Iowa
Pacific Junction Telemarketing Center, Inc. Iowa
Westside Communications, Inc. Iowa
E-99
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Breda
Telephone Corporation's financial statements for the first quarter ended
March 31, 1999 and the year ended December 31, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 782,959 2,127,711
<SECURITIES> 1,644,595 7,410,459
<RECEIVABLES> 670,499 621,032
<ALLOWANCES> 0 0
<INVENTORY> 80,279 86,128
<CURRENT-ASSETS> 1,717,550 3,177,840
<PP&E> 6,185,874 6,087,793
<DEPRECIATION> 775,293 211,174
<TOTAL-ASSETS> 13,676,328 20,134,254
<CURRENT-LIABILITIES> 2,143,072 4,129,388
<BONDS> 0 0
0 0
0 0
<COMMON> 2,414,208 2,414,208
<OTHER-SE> 1,693,818 6,335,137
<TOTAL-LIABILITY-AND-EQUITY> 13,676,328 20,134,254
<SALES> 0 0
<TOTAL-REVENUES> 2,998,767 703,621
<CGS> 0 0
<TOTAL-COSTS> 1,956,397 535,883
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 396,234 106,865
<INCOME-PRETAX> 1,515,505 7,725,678
<INCOME-TAX> 612,869 3,084,359
<INCOME-CONTINUING> 902,636 4,641,319
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 902,636 4,641,319
<EPS-BASIC> 5.79 122.71
<EPS-DILUTED> 5.79 5.71
</TABLE>
